24 B 17304
Debtor filed for relief under the Bankruptcy Code.  Since this was his third bankruptcy case within a year, he also filed a motion to impose stay.  Debtor sent notice of the motion to impose stay to tax purchaser Newline Holdings at the address of the attorney who had appeared for Newline in his second case, even though that attorney had not yet appeared in the third case.  Newline did not object to the motion to impose or appear at the hearing, and the court granted the motion.  Newline subsequently filed a motion to vacate the order imposing stay on the grounds that it was void for lack of due process.  HELD: Motion to vacate granted.  As a known creditor, Newline was entitled to actual notice of the motion to impose.  Service on an attorney who represented a creditor in a prior bankruptcy case is not service on the creditor in a later case.  Therefore, service did not comply with due process requirements.  Neither did service comply with Fed. R. Bankr. P. 9014 regarding service of a contested matter.  While there is precedent that service is sufficient when sent to the address listed on a proof of claim, that line of reasoning applies to a proof of claim filed in the same case.

23 B 12352, 24 A 222
Chapter 11 debtor confirmed its plan, then filed an adversary proceeding against a creditor that had not participated in the bankruptcy case.  In the complaint, Debtor sought to liquidate its own claim against the creditor and also requested entry of a declaratory judgment that the creditor was estopped from asserting the defense of setoff.  The creditor responded with a motion to compel arbitration and dismiss the complaint.  HELD: When an arbitration demand is made in a bankruptcy case, the court must determine whether to enforce the bilateral arbitration agreement or its in rem jurisdiction under the Bankruptcy Code.  Here, the court granted the motion to compel to the extent that the parties’ claims against each other would be liquidated in an arbitral forum.  The court denied the creditor’s request to dismiss this adversary proceeding, however, finding that the claim for relief that the court issue a declaratory judgment regarding setoff presented questions of bankruptcy law rather than a dispute under the parties’ contract.  Once the parties’ claims were liquidated by the arbitrator, they would return to bankruptcy court for resolution of the declaratory judgment claim.

23 B 8488, 23 A 387
Plaintiff filed an adversary proceeding seeking to deny the debtor a discharge under 11 U.S.C. §  727(a)(5) and finding that a debt owed to Plaintiff is nondischargeable under § § 523(a)(2), (4), and (6).  The debtor moved to dismiss the complaint, arguing the claims were time barred and that plaintiff failed to state a claim for relief under Fed. R. Civ. Proc. 12(b)(6).  HELD: The question of the dischargeability of a debt under the bankruptcy code is governed by the limitations periods established by bankruptcy law, not by the state statute of limitations on fraud. Therefore, the motion is denied as to dismissing the complaint for being time barred. However, the complaint fails to state a claim for relief. The complaint fails to sufficiently allege at least one element required for all counts and therefore the complaint is dismissed in its entirety. Plaintiff is given leave to amend.

24 B 11314
Debtor filed his 18th bankruptcy case in 13 years.  The chapter 13 Trustee brought a motion to dismiss for unreasonable delay, and also sought a two-year bar to refiling.  HELD: Debtor did not submit tax returns, proof of identity or pay advices, so the Trustee could not hold the meeting of creditors.  Debtor did not pay any of the installments of his filing fee, and he owed filing fees from his previous cases.  He filed a plan, but it could not be administered, and he did not begin making payments under that plan.  Therefore, Debtor’s actions constituted unreasonable delay.  Additionally, this case presented an extreme situation that warranted dismissal with a bar.  This was Debtor’s 16th chapter 13 case and he had never made a single plan payment in any of those cases.  His pattern of conduct and failure to comply with the requirements of the Bankruptcy Code constituted bad faith.  The court imposed a two-year bar to refiling.

23 B 4039
Debtor sought damages for violation of the automatic stay on the grounds that, after the stay terminated under 11 U.S.C. § 362(c)(3)(A) and after U.S. Bank (“Bank”) obtained relief from the stay to pursue eviction, the Bank had exercised control over property of the estate.  HELD:  In arguing that the Bank had violated the stay after she was evicted and before she recovered items that remained in the house, Debtor relied on the reasoning in In re Jones, 339 B.R. 360 (Bankr. E.D.N.C. 2006).  Jones held that § 362(c)(3)(A) terminates the stay with respect to actions taken against the debtor and property of the debtor, but not with respect to property of the estate.  It was unnecessary for this court to take a position on whether Jones’s interpretation of § 362(c)(3)(A) is correct, because Debtor did not establish that she was injured by the Bank’s control over property of the estate.  Debtor exempted nearly all of her personal property before the Bank evicted her.  Therefore, that personal property had already returned to its status as property of the debtor, for which the stay had terminated.  Debtor did not tie together her request for damages – based on hotel and food charges – with the Bank’s exercise of control over any property that remained in the estate.

24 B 17836
Housing Authority of Cook County (“Movant”) brought a motion for relief from stay, seeking authority to continue with its unlawful detainer action against Debtor’s residence.  Debtor objected.  HELD: Motion granted for two reasons.  First, Movant obtained an order of possession prior to the petition date.  Although Debtor filed the certification described in § 362(l)(1), she did not file a further certification.  Therefore, since more than 30 days had elapsed since Debtor filed her petition, the exception to the automatic stay in 11 U.S.C. § 362(b)(22) applied.  Second, even if the exception in § 362(b)(22) did not apply, relief from the stay was warranted under § 362(d)(2).  As a tenant, Debtor did not have an equity in the leased premises.  Although in many chapter 13 cases a debtor’s home is necessary for an effective reorganization, in this case Movant had offered relocation services including an alternative residence, moving expenses and funds for new furniture.  Additionally, the Supreme Court has stated that the effective reorganization must be in prospect.  Debtor had filed a chapter 13 plan, but it was essentially blank.  Therefore, Debtor did not meet her burden of showing that the property was necessary for an effective reorganization and stay relief was appropriate.

22 B 13283, 23 A 20
Plaintiffs hired Debtor/Defendant to build a house.  During the course of construction, Defendant furnished a number of sworn contractor’s affidavits that reflected the amounts paid by Plaintiffs rather than the amounts paid to various subcontractors.  Plaintiffs filed a two-count complaint seeking a finding that Defendant’s debt to them is nondischargeable pursuant to 11 U.S.C. §§ 523(a)(2)(A) and (a)(6), and then sought summary judgment on the complaint.  HELD: There is no issue of fact that Defendant made false representations in the contractor’s affidavits.  The purpose of the Mechanics Lien Act is to protect both property owners and subcontractors.  When a contractor demands payment and furnishes a sworn affidavit regarding the status of payments to subcontractors, that affidavit must reflect payments made to subcontractors and amounts remaining due.  Since there is a genuine issue of fact regarding Defendant’s intent, however, the court denied summary judgment on the § 523(a)(2)(A) count.  As for the claim that the debt was incurred for willful and malicious injury, the case law requires intent to cause injury.  There is an issue of fact as to Defendant’s intent when he furnished the affidavits.  This issue can best be resolved at a trial where the court can evaluate Defendant’s credibility on the witness stand.  Therefore, the court denied summary judgment on the § 523(a)(6) count as well.

24 B 2741
Creditor filed a motion to dismiss Debtor’s chapter 11 case on the grounds that Debtor had not obtained the prepetition consent of an independent manager, and therefore lacked authority to file for relief under the Bankruptcy Code.  HELD: Debtor’s LLC agreement required the consent of its independent manager prior to filing a petition.  The evidence showed that Debtor did not confer with the independent manager and did not obtain her consent.  Since Debtor did not establish that the independent manager resigned prepetition, acquiesced to the bankruptcy filing or ratified it, Debtor lacked authority to file the petition.  Additionally, Debtor’s corporate organization documents did not impermissibly restrict its right to file for relief under the Bankruptcy Code.  Therefore, cause existed to grant the creditor’s motion and dismiss the bankruptcy case.  The court denied creditor’s request to impose a bar to refiling.

24 B 6598
Debtor Zarifian Enterprises, LLC filed a motion to convert its involuntary chapter 7 case to one under Subchapter V. The chapter 7 trustee objected. Trustee argued that cause under § 1112 exists thereby preventing conversion and that Debtor’s failure to “engage in commercial or business activities” required by the definition of “debtor” in § 1182(1)(A) rendered it ineligible for conversion to Subchapter V. HELD: First, though a motion to convert to chapter 11 may be denied if the case would simply be reconverted “for cause” under § 1112(b), the trustee did not show “a substantial or continuing loss to or diminution of the estate” as an element of “cause” required by § 1112(b)(4)(A). Rather, Debtor’s receivables, inventory, lawsuit, and sale of equipment would generate revenue for the estate. Second, § 1182(1)(A) does not require that a debtor maintain its core or historical business operations on the petition date; it requires a debtor engaged in commercial or business activities. Though Debtor no longer maintained its historical business as a carpentry and millwork, it maintained significant assets, a bank account, a 4-year, and a claim against its landlord for wrongful lockout. Debtor would have been engaged in business activities while liquidating its assets had the involuntary petition not been filed, and it intends to file a Subchapter V plan of liquidation.

23 B 6782
Debtor IYS Ventures, LLC filed an adversary proceeding seeking to determine the validity, extent and priority of certain secured claims, including a claim filed by Eby-Brown Company, LLC.  Eby-Brown took the position that its claim was secured even though it had not filed a financing statement.  After trial, the court held that Eby-Brown did not hold a perfected lien securing its debt and that its interest was unsecured.  Debtor then filed a motion requesting imposition of sanctions under Fed. R. Bankr. P. 9011 and 11 U.S.C. § 105, and costs, expenses and attorneys’ fees under 28 U.S.C. § 1927.  HELD: Motion denied.  First, Debtor did not comply with the safe harbor requirements of Rule 9011.  Even if it had done so, Debtor waited too long to file the motion for sanctions.  Although Eby-Brown had not produced documents in response to Debtor’s requests for production, Debtor made the tactical decision not to pursue compliance with its discovery requests.  Finally, even if the motion had been timely, sanctions were not warranted under either Rule 9011 or 28 U.S.C. § 1927.  Although it did not prevail at trial, Eby-Brown advanced credible arguments in support of its position.

23 B 12544
Following examinations it requested under Fed. R. Bankr. P. 2004, a creditor asked the court to expand the subchapter V trustee’s duties.  The Debtors opposed the request.  HELD: 11 U.S.C. § 1183(b)(2) permits the expansion of a subchapter V trustee’s powers at a court’s discretion and only if the court finds that cause exists to do so.  In this case, there were no allegations of intercompany claims, or significant questions regarding the Debtors’ true financial condition, their management of the estate or the accuracy of their disclosures.  The creditor did not explain why it could not reach a conclusion following its own investigation as authorized under Rule 2004.  Additionally, the subchapter V trustee raised no concerns with the Debtors’ conduct, cooperation or disclosures.  Expanding the subchapter V trustee’s duties under these circumstances would burden the plan process and undermine the purpose of subchapter V, so the court denied the motion.

23 B 05875, 23 A 00130
Debtors/Plaintiffs moved under Fed. R. Civ. P. 54(b) (made applicable by Fed. R. Bankr. P. 7054(a)) for the court to reconsider its order denying their motion for summary judgment as to Plaintiff Julia Salameh.  Plaintiffs argued the court had not sufficiently considered their arguments.  HELD: Motion denied.  Motions to reconsider brought under Fed. R. Civ. P. 54(b) are largely treated the same as motions brought under Fed. R. Civ. P. 59(e).  Motions to reconsider are limited to correcting manifest errors of law or fact or to present newly discovered evidence.  Plaintiffs did not claim to present new evidence and showed no manifest error of law or fact in the court’s consideration of their prior arguments.

23 B 6782, 23 A 352
Debtor/Plaintiff, who operates fuel service stations and convenience stores, filed a multi-count complaint against the franchisor Defendants.  Relief was sought under the Petroleum Marketing Practices Act (“PMPA”) as well as state law, including a claim for breach of contract.  Defendants moved to dismiss, arguing that an earlier-filed motion to compel rejection of the parties’ executory contracts did not constitute termination under the PMPA.  HELD: Motion granted, with leave to amend.  Neither threats to terminate the franchise relationship nor a motion to compel rejection of the franchise contracts under the Bankruptcy Code are equivalent to termination under the PMPA.  Plaintiff’s failure to plausibly allege that the franchisors terminated or failed to renew the franchise relationship required dismissal of the PMPA and state law claims.  The court dismissed the breach of contract count for failure to comply with the requirements of Fed. R. Civ. P. 8.

22 B 1957, 23 A 00330
Chapter 11 individual debtor/plaintiff sued a party that filed a proof of claim as well as its attorneys, asserting claims for relief under the Fair Debt Collections Practices Act.  Defendants filed a motion to dismiss.  HELD: Plaintiff’s amended complaint did not contain well-pleaded allegations that each of the defendants was a debt collector.  Neither did the amended complaint plausibly allege that the underlying debt was a consumer debt – that it arose out of a transaction incurred primarily for personal, family, or household purposes.  Each of these elements is required to state a claim for relief under the FDCPA.  Since plaintiff already had an opportunity to file an amended complaint, the court granted the motion to dismiss with prejudice.

23 A 00333, 23 B 05875
Plaintiff filed a complaint objecting to Debtor’s discharge under 11 U.S.C. § 523(a)(2). The complaint did not specify whether Plaintiff is proceeding under section 523(a)(2)(A), (B), or both. Plaintiff alleges the Debtor solicited investments for his precious metals business, which Plaintiff subsequently invested in 2019 and 2020. Plaintiff further alleges Debtor’s statements were misrepresentations, that the money was never intended for trading precious metals, and instead was used to further a fraudulent Ponzi scheme. In his motion to dismiss, Debtor argues Plaintiff’s claim is actionable only under section 523(a)(2)(B) because Plaintiff’s allegations revolve around misrepresentations about an insider’s financial condition. Held: While the complaint may contain allegations that respect a financial condition, it also contains other allegations that fall within section 523(a)(2)(A). Plaintiff successfully stated a claim under § 523(a)(2)(A) by putting Debtor on notice of Plaintiff’s claims. The court denied the motion to dismiss.

23 A 00367,19 B 21150
Plaintiff filed a complaint seeking a judgment finding that the debt Debtor owed Plaintiff is excepted from discharge under 11 U.S.C. § 523(a)(3). Plaintiff was a secured creditor in Debtor’s two prior bankruptcy cases, but Debtor did not disclose Plaintiff’s debt or the underlying collateral in her third bankruptcy case. Debtor confirmed and completed a plan in her third bankruptcy case, paying one hundred percent to creditors, and receiving a substantial refund. Plaintiff had no opportunity to timely file a proof of claim and received no distribution under the plan. Plaintiff filed a motion for summary judgment, to which Debtor did not respond. HELD: Nonmovant’s failure to respond to the motion for summary judgment did not result automatically in a judgment for movant. Rather, movant must show that summary judgment is proper given the undisputed facts taken in the light most favorable to the nonmovant. Plaintiff’s debt was excepted from discharge under § 523(a)(3)(A) because Debtor’s failure to list or schedule Plaintiff resulted in denying Plaintiff the opportunity to timely file a proof of claim. Debtor alleged she had notified Plaintiff of the bankruptcy case during state court litigation, but the notice alleged was 15 months too late for Plaintiff to timely file a proof of claim. Debtor’s allegation that she innocently omitted Plaintiff from her schedules believing the debt had been paid did not justify application of equitable exception to 523(a)(3)(A). The equitable exception applies in “no asset” cases where creditor has been unharmed by the omission, but Debtor did have assets and Plaintiff had been denied a distribution because of the omission

23 A 00334, 23 B 05875
Plaintiff filed a complaint objecting to Debtors’ discharge under 11 U.S.C. § 523(a)(2). The complaint did not specify whether Plaintiff is proceeding under section 523(a)(2)(A), (B), or both. Plaintiff alleges Awad Odeh’s brother solicited investments for his precious metals business, Plaintiff subsequently invested in 2019, and the business later defaulted on the investment agreements. Plaintiff further alleges that to induce him to forbear on enforcing his collection rights against the brother and his company, Debtors executed a promissory note to delay collections by two weeks. Plaintiff alleges Debtors’ statements were misrepresentations, that Debtors never intended to honor the promissory note, and were instead trying to prop up a fraudulent Ponzi scheme. In his motion to dismiss, Debtors argue Plaintiff’s claim is actionable only under section 523(a)(2)(B) because Plaintiff’s allegations revolve around misrepresentations about an insider’s financial condition. Held: While the complaint may contain allegations that respect a financial condition, it also contains other allegations that state a claim under § 523(a)(2)(A) against Defendant Awad Odeh by putting Debtor on notice of Plaintiff’s claims. Plaintiff failed to state a claim against Defendant Salameh. The court denied the motion to dismiss as to Defendant Odeh and granted the motion as to Defendant Salameh.

23 A 169, 23 B 4595
Plaintiff filed a complaint seeking a finding that its claim against Defendant was nondischargeable pursuant to 11 U.S.C. §§ 523(a)(2)(A) and (a)(4). Pro se Defendant filed a motion to dismiss, arguing both insufficient service of process and failure to state a claim. HELD: Motion granted in part and denied in part. Plaintiff did not file a server’s affidavit within 90 days of filing its complaint, therefore it did not demonstrate that the court had jurisdiction over the Defendant through effective service. Additionally, the CM/ECF system’s transmission of a copy of the complaint to Defendant’s bankruptcy counsel did not accomplish service as required by the Federal Rules. Since Plaintiff failed to prove that Defendant was served within 90 days after the complaint was filed, the court was required either to dismiss the action without prejudice or to order that service be made within a specified time. In its discretion, and in light of the service proven by affidavit about a month before Defendant filed the motion to dismiss, the court denied the motion to dismiss for insufficient service. Next, the court found that, even viewing the allegations of the complaint in the light most favorable to it, Plaintiff failed to state a claim under § 523(a)(2)(A). The court granted the motion as to that count, without prejudice to an amended complaint. Finally, the court denied the motion to dismiss the claim for relief under § 523(a)(4).

23 A 194, 23 B 6782
Chapter 11 Debtor/Plaintiff filed an adversary proceeding against five defendants, seeking to determine the extent, validity and priority of their liens and interests against its assets. Plaintiff reached agreement with four of the five defendants. The fifth defendant, Eby-Brown, raised several arguments in opposition to Plaintiff’s contention that its claim was unsecured. HELD: First, to determine whether Eby-Brown holds a secured claim, and its priority among the competing defendants, the court must consider the issue of perfection. Eby-Brown did not file a financing statement, and so it did not perfect its lien under state law. The court rejected Eby-Brown’s request to treat a state court complaint and asset freeze order as “equitable perfection.” The court also declined to create an equitable lien, which in any event would have been subordinated to the Debtor’s status as a hypothetical lien creditor. Finally, the court held that the Rooker-Feldman doctrine did not apply. Judgment entered in favor of Plaintiff.

12 B 18946, 23 A 00361
Plaintiff sued Defendant in state court in 1999, alleging breach of contract and fraud.  The parties resolved the lawsuit with a consent judgment in which the state court entered judgment in a certain amount in favor of Plaintiff and dismissed the fraud count with prejudice.  Defendant filed for relief under the Bankruptcy Code in 2012 and did not provide notice to Plaintiff.  In November 2023, Plaintiff brought a motion to reopen that 2012 bankruptcy case, and then filed an adversary proceeding seeking relief under 11 U.S.C. §§ 523(a)(2) and (a)(3).  Defendant brought a motion to dismiss, arguing that res judicata (claim preclusion) barred Plaintiff from pursuing a nondischargeability claim based on fraud.  Plaintiff opposed the motion on the grounds that there was no identity of cause of action, as required by Illinois law to apply claim preclusion.  HELD: Plaintiff’s assertion was correct – dismissal of the fraud claim in state court, even through the mechanism of a consent judgment, did not preclude Plaintiff from bringing a claim under § 523(a)(2).  Courts are generally in agreement that claim preclusion does not prevent a state court plaintiff from litigating dischargeability in bankruptcy court, because it is a different cause of action that could not have been litigated in a prior lawsuit.