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Judge David D. Cleary - Opinions

Description Date Issued
Adrienne L Butler and Juan J Jackson v. City of Chicago (In Re: Adrienne L Butler)

17 B 25014, 22 A 00189
Debtor/Plaintiff Jackson filed for relief under chapter 13 in 2017.  The City of Chicago seized his car in August 2017, while the case was pending.  Four days later, Debtor/Plaintiff Butler filed her own chapter 13 case.  Jackson had allowed her the possession and use of the car.  Both Plaintiffs demanded the car’s return, which did not occur until they paid a prepetition debt.  Butler sought and obtained dismissal of her case less than two weeks after filing her petition; Jackson’s case was dismissed about six months later.  More than five years after the court dismissed Butler’s case, she and Jackson filed a complaint alleging claims against the City under 11 U.S.C. §§ 362 and 542.  The City filed a motion to dismiss the entire complaint. HELD:  Motion to dismiss granted.  Only Butler sought relief under § 362, and the claims asserted under § 362 are contested matters that must be brought by motion, not by adversary proceeding.  To the extent that Plaintiffs’ claim under § 542 sought damages for failure to turn over the car immediately upon the filing of Butler’s bankruptcy case, it is a contested matter that must be brought by motion.  To the extent that the § 542 count sought an accounting for the value of the temporary loss of the vehicle, it did not state a claim for relief.  Dismissal and closing of the underlying bankruptcy cases did not eliminate Plaintiffs’ ability to seek a finding of contempt for failure to comply with the turnover requirement.

In re: Novus Structures, Inc.

23 B 06723
Lender asked the court to excuse a state court receiver from compliance with its obligation to turn over real property to a chapter 11 debtor.  HELD: Motion denied.  Congress mandated that a custodian of property of the debtor must turn it over at the commencement of a bankruptcy case.  The court has significant latitude to exercise its discretion to excuse that obligation, but the burden is on the Lender to convince the court that it should do so.  The facts of this case do not rise to the level required to flip the statutory presumption.  First, the Lender has other remedies available under the Code, which may be more appropriate.  Allowing the Lender to achieve a similar result under a lesser standard of proof would be contrary to the purposes of chapter 11.  Second, an “abstention” from turnover would render the Debtor unable to pursue a reorganization for the benefit of all creditors.  Finally, the judicially-created factors for analyzing a motion to excuse compliance weigh in favor of denying the Lender’s motion.  For all of these reasons, the Receiver should not be excused from his turnover obligation.

In re Bobby Binion

23 B 5260

Debtor and his partner purchased real property in 1994. Over the past three decades they granted several mortgages, which resulted in four separate foreclosure proceedings, transferred the property between themselves and other entities, and filed a combined ten bankruptcy cases. The City of Chicago requested dismissal of Debtor’s current chapter 13 case with a three year bar to refiling. HELD: Court made findings of fact as to the actions of Debtor and his partner with regard to this piece of real property. Based on those findings of fact, under the standard articulated by the Seventh Circuit, Debtor did not file this bankruptcy case in good faith. Cause exists under 11 U.S.C. § 1307(c) to dismiss this case. Furthermore, Debtor’s lack of good faith, pattern of conduct and failure to comply with the requirements of the Bankruptcy Code support a finding of bad faith. Therefore, it is appropriate to dismiss this case with a three year bar to refiling under 11 U.S.C. § 349.

In re: Mary Ann Pappone

20 B 05362
The court granted the chapter 13 Trustee’s motion to modify plan, increasing Debtor’s plan payments to reflect previously undisclosed commission income.  About a month later, Debtor filed her own motion to modify plan, alleging that her employer had changed her position and she was no longer eligible for commissions.  The Trustee opposed the Debtor’s motion on the grounds that her plan was not proposed in good faith.  HELD: Debtor submitted two letters from her employer to document the change in her employment.  Her proposed plan payments included income that she could have excluded, as benefits received under the Social Security Act.  And, she offered to turn over any future bonuses and to provide copies of her paystubs.  Although Debtor had previously submitted schedules that did not disclose all of her commission and bonus income, the question before the court was whether Debtor’s conduct supporting this plan represented a good faith effort to satisfy her creditors’ claims.  Considering the totality of the circumstances and finding that it did, the court granted her motion to modify plan.

In re: Marie A. Cahill

16 B 01529
Debtor objected to the claim filed by the father of her children.  She asserted that he was precluded from relitigating the allocation of certain expenses by an agreed order entered in state court.  HELD: The state court agreed order, signed by both parties, is a settlement agreement.  When reviewing a settlement agreement, the court must look to the objective intent of the parties rather than their subjective intent.  Since the state court agreed order opened with the statement that it was “coming to be heard on the remaining financial issues in the cause,” it did not leave the allocation of those expenses open for later resolution.  The parties were bound by the terms of the order and barred from continued litigation.  Claim preclusion (res judicata) also applied to preclude the parties from relitigating the issues covered by the agreed order.  Although the father had filed a motion to vacate the agreed order after Debtor filed her objection to his claim, this did not affect the finality of the agreed order for purposes of claim preclusion.  Since the father’s claim was unenforceable under state law, the court sustained Debtor’s objection to claim.

In re: Chanel N. Brown

23 B 00837
Chapter 13 debtor proposed a 36-month plan.  A secured creditor with a claim treated in section 3.3 of the plan objected on the grounds that the plan did not comply with 11 U.S.C. § 1325(a)(6), since this creditor would not receive payment in full within 36 months.  HELD: The language of Official Form 113, which is the national form chapter 13 plan and must be used by debtors in the Northern District of Illinois, provides in section 2.1 that “[i]f fewer than 60 months of payments are specified, additional monthly payments will be made to the extent necessary to make the payments to creditors specified in this plan.”  Pursuant to this language, Debtor would be required to continue paying after the 36-month term of the plan had passed, until the Trustee had sufficient funds to pay this secured creditor as specified in section 3.3.  Therefore, Debtor satisfied the requirement of § 1325(a)(6) that she would be able to make all payments under the plan and to comply with the plan.  Objection overruled and plan confirmed.

In re: Charles Roosevelt Williams

21 B 14066
The chapter 13 Trustee filed a motion to dismiss for nonpayment.  Debtor filed a motion to modify his plan, requesting suspension of payments while he was out on medical leave.  Debtor then filed an amended motion to modify, requesting a longer suspension when his medical leave was extended.  After hearing testimony from the Debtor, the court HELD: Temporary suspension of payments can be an appropriate modification of a chapter 13 plan.  Both case law and non-statutory procedures used in various courts support this proposition.  In this situation, although the Debtor was sincere and credible, the proposed modification did not meet the requirements of 11 U.S.C. § 1325(a).  Suspension is temporary, not indefinite.  Debtor did not have a return-to-work date that was certain.  Suspension of payments for an indefinite period of time did not satisfy the requirements that a plan must be proposed in good faith and that a debtor must be able to make all payments under the plan.  Therefore, the amended motion to modify was denied and the motion to dismiss was granted.

In re: Zbigniew Bednarz

21 B 01817
Chapter 13 Trustee moved to dismiss Debtor’s bankruptcy case for failure to make payments.  Debtor responded with a motion to modify his chapter 13 plan, requesting a decrease in plan payments as well as a reduction in the plan term.  Although he was a below-median debtor, he had confirmed a 60-month plan in order to accommodate the claim filed by his mortgage lender, who had subsequently been granted relief from the stay.  The chapter 13 Trustee objected to Debtor’s motion to modify.  The parties did not request an evidentiary hearing.  HELD:  Motion to modify denied and motion to dismiss granted.  It is a plan proponent’s burden to prove that the statutory requirements for modification are satisfied.  When an objection is raised to the requested relief, the proponent must do more than upload bills to the court docket in order to show that the modification is proposed in good faith as required by 11 U.S.C. § 1325(a)(3) and is feasible as required by 11 U.S.C. § 1325(a)(6).   Debtor submitted utility bills and credit card payment coupons that did not support his amended Schedule J.  In light of the Trustee’s objection, the court could not take Debtor’s schedules at face value, and, without knowing whether Debtor’s expenses were accurate, the court could not determine whether the modification was proposed in good faith or whether it was feasible.  Debtor asserted that his Social Security income could not be counted toward his available income, but without any contribution of Social Security benefits, Debtor’s proposed modification was not feasible.  Debtor included a line item on Schedule J for mortgage/rent that appeared to be a monthly payment due to the lender for which relief from the stay had been granted.  Debtor presented no evidence that he was currently making those payments; in fact, the mortgage statement he submitted appeared to show that no payments had been made for six months.  For all of these reasons, the court found that Debtor had not met his burden of proof and his motion to modify would be denied.  Without modification, it was appropriate to grant the Trustee’s motion to dismiss for nonpayment.

In re: Nicole M. De Roo

22 B 02091
Debtor moved to modify her chapter 13 plan seven months after confirmation. She requested a decrease in plan payments as well as a reduction in the percentage to unsecured creditors, asserting that certain expenses had increased. The chapter 13 Trustee objected to Debtor’s motion to modify.  The parties did not request an evidentiary hearing.  HELD:  Motion denied.  The utility bills Debtor submitted in support of her request were insufficient to satisfy her burden of proof that required her to establish reasonable and necessary expenses, including the amount of, and services provided for, the proposed expenses, and that her plan was proposed in good faith as required by 11 U.S.C. § 1325(a)(3).  None of the bills supported a finding that Debtor’s expenses increased post confirmation.  Similarly, Debtor’s apparently voluntary decision to increase her rent payment at the expense of her unsecured creditors was not evidence of good faith.

In re: Javier Gonzalez

22 B 08732
Mortgage company (“Reliant”) filed proof of claim based on foreclosure judgment.  Debtor objected to Reliant’s claim on the grounds that the foreclosure litigation was commenced after the statute of limitations had expired.  Reliant made two arguments in response: (1) the Rooker-Feldman doctrine precluded bankruptcy court review of the foreclosure judgment; and (2) Debtor made a payment which restarted the statute of limitations.  HELD: Objection to claim overruled, although not because of the Rooker-Feldman doctrine.  In fact, because Illinois foreclosure judgments are interlocutory until the sale is confirmed, Rooker-Feldman did not apply.  However, Debtor made a payment on the mortgage in July 2022, less than a month before filing for relief under the Bankruptcy Code.  Although the limitations period had passed, under applicable Illinois law, this payment restarted the statute of limitations clock.  Therefore, Reliant’s claim was not unenforceable under state law and the court overruled Debtor’s objection.

Patrick S. Layng, United States Trustee v. Mohammad Tahseen (In re: Mohammad Tahseen)

18 B 03134, 22 A 00016
While his bankruptcy case was pending, and after his discharge was entered, Debtor granted a mortgage without court authority. Trustee sought turnover of documentation and the loan proceeds, first informally and then through a motion for turnover. The court granted the motion for turnover. Debtor did not comply fully with the turnover order, so Trustee brought a motion for contempt. The court held an evidentiary hearing and entered an order finding Debtor in contempt for failure to turn over all available proceeds. Debtor purged the contempt. Plaintiff U.S. Trustee then sought revocation of Defendant/Debtor’s discharge under 11 U.S.C. §§ 727(d)(2) and (d)(3). Parties filed cross motions for summary judgment. HELD: Both motions denied. Under § 727(d)(2), a material question of fact exists as to whether Defendant’s course of conduct and delay in reporting, delivering or surrendering the mortgage proceeds constitutes reckless behavior that would support a finding that he acted knowingly and fraudulently. Under § 727(d)(3), there is no material dispute that Defendant received the turnover order and did not comply fully. The burden of production then shifts to Defendant to explain his failure to comply. A material question of fact exists as to whether Defendant has sufficiently explained the delay in obeying the turnover order.

In re: Smylie Brothers Brewing Company, LLC

22 B 15005
Trustee sought court authorization under 11 U.S.C. § 365(a) to reject a lease, in a transaction that called for the landlord to pay the estate $10,000 and for the lease to be “terminated.”  In the alternative, the Trustee requested approval of the transaction under 11 U.S.C. § 363(b) as a sale of estate property.  A creditor that purportedly held an interest in the lease objected.  HELD: Motion denied.  First, rejection under § 365(a) does not equal termination.  Some courts have held that deemed rejection under § 365(d)(4) constitutes termination, but that subsection is not applicable to the facts of this case.  Since the motion and proposed order requested a finding that the lease was terminated, the court could not grant the relief sought under § 365(a).  Second, although § 363(b) provides authority for the Trustee to sell estate property with court permission, he must provide adequate protection to entities with an interest in that property.  No adequate protection was proposed for the creditor with an interest in the lease, so the court could not authorize the Trustee to sell it.

Joan Johnson v. S.A.I.L., LLC (In re: Joan Johnson)

22 A 00172, 22 B 08837
Debtor borrowed money from SAIL prepetition.  The agreement between Debtor and SAIL provided for arbitration of all disputes.  SAIL filed a proof of claim in Debtor’s chapter 13 case.  Debtor filed a three count adversary proceeding objecting to SAIL’s claim and bringing a counterclaim.  In response, SAIL filed a motion to compel arbitration of all three counts of the complaint.  HELD: When an arbitration demand is made in a bankruptcy case, a conflict exists as to whether the court should enforce the bilateral arbitration agreement, or its in rem jurisdiction over the claims under the Bankruptcy Code.  Neither the Seventh Circuit nor the Supreme Court have addressed the narrow issue regarding the potential conflict between the Federal Arbitration Act and the Bankruptcy Code.  Counts I and III object to SAIL’s claim on the grounds that it is unenforceable under state law, specifically the Predatory Loan Prevention Act and the Consumer Fraud and Deceptive Business Practices Act.. Resolution of Counts I and III involves the allowance or disallowance of a claim against the estate, and must necessarily be determined in adjudicating SAIL’s claim.  Debtor’s plan will not be confirmed, creditors will not receive distributions, and Debtor’s discharge will not issue until Counts I and III are resolved.  If arbitration of these claims for relief is permitted, there would be an inherent conflict with the Bankruptcy Code, so the motion to compel must be denied.  Count II is a counterclaim under the Illinois Interest Act.  This claim for relief arises solely under state law.  Its resolution does not impact adjudication of SAIL’s claim. Debtor’s plan can be modified at a later date to provide for distribution to creditors of any recovery under Count II.  Sending this claim for relief to arbitration does not inherently conflict with the purposes of the Bankruptcy Code, and the motion to compel arbitration is granted as to Count II.

1600 Hicks Road LLC v. EH National Bank (In re: 1600 Hicks Road LLC)

22 B 13205, 23 A 00016
Chapter 11 debtor asked the court to enter a preliminary injunction halting a creditor’s state court proceedings against its principals.  The state court litigation was based on the principals’ guarantee of a deficiency claim against the debtor.  HELD: 11 U.S.C. § 105(a) supports the bankruptcy court’s power to enter an injunction in order to protect its jurisdiction.  Many bankruptcy courts have used this power to enjoin litigation against a non-debtor.  To obtain such an injunction, the debtor had to prove a likelihood of a successful reorganization and that the injunction would serve the public interest.  First, it is not a high burden to show a reasonable likelihood of success in reorganization, and the debtor met this burden.  Debtor had already proposed a plan that depended on the principals being able to focus on their management and operation of debtor’s tenant.  Rent from this tenant would fund the plan and enable the debtor to pay its creditors in full.  Without the injunction, the principals’ attention would be diverted; this would jeopardize the proposed reorganization.  Second, it is in the public interest to maintain the tenant’s business and to allow the reorganization to proceed; doing so would benefit all parties in interest.  Debtor also established that failure to enjoin the creditor would result in irreparable harm and that it had an inadequate remedy at law, the remaining elements necessary for a preliminary injunction.

4820 & 4901 Ltd vs. Ben Tesler (In re: Ben Tesler)

21 B 00472, 22 A 00102
Defendant Ben Tesler sought dismissal of Plaintiff 4820 & 4901 Ltd.’s five count complaint seeking denial of Tesler’s discharge.  HELD: Plaintiff plausibly alleged a claim for relief under three subsections of 11 U.S.C. § 727(a).  First, the complaint adequately stated a cause of action for concealment under § 727(a)(2).  At this stage of the proceedings, an allegation that assets were deliberately withheld from Defendant’s schedules is sufficient to state a claim for concealment.  The intent requirement of this section is in the disjunctive, so the complaint need only allege an intent to hinder or delay or defraud.  Allegations regarding Defendant’s course of conduct plausibly pleaded the required intent.  Second, the complaint adequately stated a cause of action for failure to keep or preserve records under § 727(a)(3).  It contained allegations that Defendant did not produce all requested documents and, with his background and experience, should have known how to keep and preserve records.  Finally, the complaint adequately stated a cause of action for making a false oath in connection with the case under § 727(a)(4)(A), because Plaintiff alleged that Defendant omitted two assets from his schedules that he should have known to disclose.  As with the claim for relief under § 727(a)(2), allegations regarding Defendant’s course of conduct were sufficient to plead an intent to defraud.  The court granted the motion to dismiss the counts in which Plaintiff sought relief under § 727(a)(4)(D) and (a)(6).  Section 727(a)(4)(D) requires allegations that a defendant withheld information with an officer of the estate, and there were none in the complaint.  Finally, in its response Plaintiff asked to withdraw the § 727(a)(6) count.

In re: Curtis C. Conway

22 B 12839
Shortly after Debtor filed his third chapter 13 case within a year, American Credit Acceptance (“ACA”) sought relief from the stay.  It argued that cause existed to modify the stay because its secured interest in Debtor’s car was not adequately protected.  HELD: Cause, which includes a lack of adequate protection, existed to grant relief from the stay.  Although Debtor obtained full coverage insurance after ACA filed its motion, and he proposed preconfirmation payments in an amount sufficient to satisfy either of two commonly used tests, the court must balance all relevant factors to determine whether a creditor is adequately protected.  Although Debtor proposed payments to ACA in his plan, these payments were not feasible.  The income available on Schedule J did not match the amount of his plan payments, even without taking into account a new obligation to pay rent.  Moreover, Debtor’s prepetition conduct – his two previous cases were dismissed prior to confirmation, his prepetition default equaled approximately 16 months of payments, and ACA had already repossessed the car twice – further supported a finding that ACA was not adequately protected.  Therefore, the court granted the motion for relief from the automatic stay.

In re: Linda Stamps

19 B 21730
In accordance with section 3.1 of Debtor’s confirmed plan, the chapter 13 Trustee sought recovery of funds distributed to the City of Chicago after relief from stay as to the City’s collateral was granted to another creditor.  The City brought a motion to enforce the plan and for declaratory relief, seeking a finding that the Trustee wrongly interpreted the following language in section 3.1: “If relief from the automatic stay is ordered as to any item of collateral listed in this paragraph, then, unless otherwise ordered by the court, all payments under this paragraph as to that collateral will cease, and all secured claims based on that collateral will no longer be treated by the plan.”  HELD: The court has both inherent authority and a statutory basis to interpret and enforce a confirmed plan.  This language in section 3.1 is unambiguous.  The plain meaning of the language is that when relief from stay is granted, all secured claims based on that collateral – even those not listed in section 3.1 – are no longer treated by the plan.  This provision does not render the national form plan unconfirmable, and the history of the form plan’s drafting does not dictate a different result.  If parties prefer a different result, they may include a nonstandard provision in section 8.1, or request that the court “order otherwise” at the time stay relief is granted.  In this case, the Trustee was correct to stop making payments and to demand that the City return funds paid after the court granted relief from the stay.

Bert Friedman and Julie Solomon v. Michael Lawrence Harshfield (In re: Michael Lawrence Harshfield)

21 B 11947, 22 A 8
Plaintiffs invested in a company for which Defendant was a managing member.  They have not received any return on their investment and brought a four count complaint seeking to except their claim from Defendant’s discharge.  HELD: Plaintiffs did not plead sufficient allegations to establish a plausible claim for relief under § 523(a)(2), although they will be allowed to amend the complaint to do so.  Among other issues, a document on which Plaintiffs allegedly relied was not provided to them by Defendant, and the complaint did not allege that the employee who did provide it was Defendant’s agent.  The complaint does state a claim under § 523(a)(4), but only with respect to actions taken after Plaintiffs had already invested in the company, and not for securities fraud.  Finally, the complaint does not state a claim for relief under § 523(a)(6).  Plaintiffs did not respond to Defendant’s argument that the § 523(a)(6) claim should be dismissed.

In re: Marie A. Cahill

16 B 01529
After investigating Debtor’s assets and the estate’s potential claims, Trustee filed a qui tam lawsuit.  Several years of litigation ensued, including an appeal to the Illinois Supreme Court.  The qui tam defendant – now a creditor as well, having bought a claim against the estate – offered to purchase the lawsuit from the Trustee for an amount equal to all allowed claims against the estate.  Trustee declined the offer.  The defendant brought a motion to compel Trustee to comply with his duties under 11 U.S.C. § 704.  HELD: Movant did not comply with Fed. R. Bankr. P. 9013, which requires every motion to “state with particularity the grounds therefor[.]”  At oral argument, movant clarified that it sought a determination that this is a surplus estate case.  The court found that this determination would be an advisory opinion.  Under the case-or-controversy requirement of the Constitution, the court does not have subject matter jurisdiction to render an advisory opinion.  Therefore, the request to determine whether there is a surplus estate was denied.  To the extent the motion to compel sought to require the Trustee to provide information regarding his pre-lawsuit investigation of asset transfers by the Debtor, the motion was granted.  The movant’s request to find that the special counsel Trustee employed to prosecute the lawsuit had an undisclosed conflict was denied after movant admitted this motion was not the appropriate procedure for reconsideration of a retention order.

In re: Wendy Sue Giannini

21 B 13170
Chapter 13 Trustee sought dismissal prior to confirmation, arguing that the proposed plan did not comply with 11 U.S.C. § 1325(a)(6).  HELD: Debtor did not establish by a preponderance of the evidence that she would be able to make all payments under the plan and to comply with the plan.  To be feasible, a plan must have a reasonable likelihood of success.  Although this requirement is not rigorous, a debtor must show that her income exceeds expenses by an amount sufficient to make the proposed payments.  While Debtor had sufficient disposable income on the petition date, her spouse’s monthly severance pay would end in September 2022, leaving her with negative disposable income.  Her assertions that she would have additional income from a new job and a friend’s voluntary contributions, and that her spouse would look for employment, were not supported by evidence.  Neither were her vague contentions that there was room in her budget to reduce expenses.  Therefore, she could not satisfy the feasibility requirement of § 1325(a)(6).