Subscribe to All Opinions12 B 26779
Upon the Judgment Creditor’s motion for relief from automatic stay and the Debtor’s motion to avoid the Judgment Creditor’s liens as impairing exemption, held: (i) the Debtor’s ownership rights in funds that were in possession of third party were estate property, despite the Judgment Creditor’s prepetition service of state-court turnover order on third party; (ii) any postpetition setoff against judgment without leave of court by the Judgment Creditor of the Debtor’s royalties was void; (iii) conditional grant of motion for stay relief was warranted; (iv) neither res judicata nor Rooker-Feldman doctrine applied to bar the Debtor from claiming exemptions and seeking to avoid judicial liens impairing those exemptions; and (v) any royalties collected by the Judgment Creditor postpetition were estate property in which the Debtor could claim exemption. Motion for relief from stay granted in part and denied in part. Motion to avoid liens granted.
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Judge Timothy A. Barnes
October 10, 2012
09 B 39937, 11 A 02239
Upon the Defendant’s motion to dismiss the Chapter 11 Plan Administrator’s adversary proceeding, seeking to avoid and recover as fraudulent transfers lease payments transferred from Debtor to Defendant that purportedly were part of fraudulent scheme, held: (i) the claims in the Amended Complaint clearly provided the elements of a Ponzi-type scheme and thus provided a theory out of which a constructive trust may arise under Illinois law; and (ii) while the in pari delicto doctrine may be available in the context of a claim for constructive trust, there are no allegations in the count in question that the Plan Administrator also participated in the alleged fraud, only that such a fraud existed. Motion to dismiss denied.
09 B 39937, 11 A 02196
Upon the Defendants’ motion to dismiss the Chapter 11 Plan Administrator’s adversary proceeding, seeking to avoid and recover as fraudulent transfers lease payments transferred from the Debtor to the Defendant that purportedly were part of fraudulent scheme, held: (i) the Defendants’ interpretation of the interplay between sections 11 U.S.C. §§ 544 and 546 with respect to the statute of limitations to avoid fraudulent transfers was not well founded as the overwhelming majority of opinions in this circuit interpreting such interplay go against the Defendants’ assertions; (ii) that the Debtor may have received “reasonably equivalent value” was not fatal to cause of action to avoid lease payments as actually, and not just constructively, fraudulent transfers; (iii) allegations in complaint did not establish “good faith and for value” defense on face of complaint for purposes of 11 U.S.C. § 548(c); but (iv) the Plan Administrator failed to adequately allege Ponzi-type scheme and to explain how challenged payments were used to further alleged scheme and harm the Debtor’s other creditors. Motion to dismiss granted.
09 B 39937, 11 A 02224
Upon the Defendant’s motion to dismiss the Chapter 11 Plan Administrator’s adversary proceeding, seeking to avoid and recover as fraudulent transfers lease payments transferred from the Debtor to the Defendant that purportedly were part of fraudulent scheme, held: (i) that the Debtor may have received “reasonably equivalent value” was not fatal to cause of action to avoid lease payments as actually, and not just constructively, fraudulent transfers; (ii) the Plan Administrator did not have to identify a specific unsecured “triggering creditor” that was in existence at time of challenged transfers in order to state cause of action to avoid transfers as actually fraudulent to creditors under Illinois law, in exercise of 11 U.S.C. § 544(b) strong-arm powers due to scores of unsecured claimants; but (iii) the Plan Administrator failed to adequately allege Ponzi-type scheme and to explain how challenged payments were used to further alleged scheme and harm the Debtor’s other creditors. Motion to dismiss granted in part and denied in part.
09 B 39937, 11 A 02201
Upon the Defendant’s motion to dismiss the Chapter 11 Plan Administrator’s adversary proceeding, seeking to avoid and recover as fraudulent transfers lease payments transferred from the Debtor to the Defendant that purportedly were part of fraudulent scheme, held: (i) the defense of in pari delicto was unavailable to the Defendant because the claims were not claims that the Debtor could itself have asserted outside of bankruptcy; (ii) the Defendant did not conclusively establish the 11 U.S.C. § 547(c)(2) “ordinary course of business” defense and the Plan Administrator was not required to preemptively please facts negating the defense; but (iii) the Plan Administrator failed to adequately allege Ponzi-type scheme and to explain how challenged payments were used to further alleged scheme and harm the Debtor’s other creditors. Motion to dismiss granted.
09 B 39937, 11 A 02218
Upon the Defendant’s motion to dismiss the Chapter 11 Plan Administrator’s adversary proceeding, seeking to avoid and recover as fraudulent transfers lease payments transferred from the Debtor to the Defendant that purportedly were part of fraudulent scheme, held: (i) allegations in complaint did not establish “good faith and for value” defense on face of complaint for purposes of 11 U.S.C. § 548(c); (ii) the Plan Administrator did not have to identify a specific unsecured “triggering creditor” that was in existence at time of challenged transfers in order to state cause of action to avoid transfers as actually fraudulent to creditors under Illinois law, in exercise of 11 U.S.C. § 544(b) strong-arm powers due to scores of unsecured claimants; but (iii) the Plan Administrator failed to adequately allege Ponzi-type scheme and to explain how challenged payments were used to further alleged scheme and harm the Debtor’s other creditors. Motion to dismiss granted.
09 B 39937, 11 A 02231
Upon the Defendant’s motion to dismiss the Chapter 11 Plan Administrator’s adversary proceeding, seeking to avoid and recover as fraudulent transfers lease payments transferred from the Debtor to the Defendant that purportedly were part of fraudulent scheme, held: (i) allegations in complaint did not establish “good faith and for value” defense on face of complaint for purposes of 11 U.S.C. § 548(c); (ii) the Plan Administrator did not have to identify a specific unsecured “triggering creditor” that was in existence at time of challenged transfers in order to state cause of action to avoid transfers as actually fraudulent to creditors under Illinois law, in exercise of 11 U.S.C. § 544(b) strong-arm powers due to scores of unsecured claimants; but (iii) the Plan Administrator failed to adequately allege Ponzi-type scheme and to explain how challenged payments were used to further alleged scheme and harm the Debtor’s other creditors. Motion to dismiss granted.
09 B 39937, 11 A 02582
Upon the Defendant’s motion to dismiss the Chapter 11 Plan Administrator’s adversary proceeding, seeking to avoid and recover as fraudulent transfers lease payments transferred from the Debtor to the Defendant that purportedly were part of fraudulent scheme, held: (i) the Plan Administrator did not have to identify a specific unsecured “triggering creditor” that was in existence at time of challenged transfers in order to state cause of action to avoid transfers as actually fraudulent to creditors under Illinois law, in exercise of 11 U.S.C. § 544(b) strong-arm powers due to scores of unsecured claimants; but (ii) the Plan Administrator failed to adequately allege Ponzi-type scheme and to explain how challenged payments were used to further alleged scheme and harm the Debtor’s other creditors. Motion to dismiss granted.
09 B 39937, 11 A 02227
Upon the Defendant’s motion to dismiss the Chapter 11 Plan Administrator’s adversary proceeding, seeking to avoid and recover as fraudulent transfers lease payments transferred from the Debtor to the Defendant that purportedly were part of fraudulent scheme, held: (i) that the Debtor may have received “reasonably equivalent value” was not fatal to cause of action to avoid lease payments as actually, and not just constructively, fraudulent transfers; but (ii) the Plan Administrator failed to adequately allege Ponzi-type scheme and to explain how challenged payments were used to further alleged scheme and harm the Debtor’s other creditors. Motion to dismiss granted.
Judge Janet S. Baer
October 2, 2012
12 B 27635
In re Tranise D. Rose The debtor filed a motion for sanctions against the collections law firm representing debtor's judgment creditor, alleging a violation of the automatic stay. Prior to the bankruptcy case, the law firm caused a citation to discover assets to be served on the debtor's bank, which placed an administrative hold on debtor's bank accounts. The issue before the Court was whether the law firm willfully violated the automatic stay when it refused to take steps to release the hold on the bank accounts upon learning of the bankruptcy petition. The Court held that continuation of the citation proceeding violated § 362(a)(1) of the Bankruptcy Code. The Court further found that the law firm's violation was willful. The law firm refused to to take steps to release the funds, asked for case law in support of debtor's position, and demanded an order from the bankruptcy court before it would comply with debtor's request to dismiss the citation proceeding. Although the law firm eventually proceeded to get the funds released, it failed to communicate that decision to debtor's counsel even though it knew of counsel's intent to seek sanctions if steps were not immediately taken to release the hold on debtor's accounts. The law firm further exacerbated the situation by failing to appear the initial hearing on the motion for sanctions. The Court granted the motion and awarded attorneys' fees as a sanction against the law firm and in favor of Debtor's counsel pursuant to § 362(k)(1).