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 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 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 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.

23 A 124, 23 B 2003
Plaintiff filed a complaint objecting to Debtor’s discharge under 11 U.S.C. §§ 523(a)(2)(A), (a)(6), and (a)(19).  Plaintiff alleged he invested money with the Debtor in 2018 and 2019 and only received a small repayment in return.  The complaint was dismissed with leave to amend.  In his amended complaint, Plaintiff alleges the investment was obtained through fraud and misrepresentations and that the Debtor never intended to provide a return or repayment of the investment.  Debtor filed a motion to dismiss the amended complaint.  Held: Plaintiff successfully stated a claim under §§ 523(a)(2)(A) and (a)(6) by making additional allegations with particularity sufficient to put the Debtor on notice of Plaintiff’s claims.  Plaintiff failed to state a claim under § 523(a)(19) by failing to plead that the alleged investment was a security and failing to make any allegations satisfying (a)(19)(b).  The court denied the motion to dismiss as to counts I and II and granted the motion as to count III, with leave to amend.

23 B 16481
Chapter 7 debtor sought conversion under 11 U.S.C. § 706(d) to subchapter V of chapter 11.  The case trustee and the Debtor’s ex-wife opposed the request on the grounds that Debtor was not eligible to be a debtor under chapter 11.  HELD: The Supreme Court explained in Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (2007), that the right to convert under § 706 is limited.  Bankruptcy judges may deny a motion to convert if the case would simply be reconverted.  Since a state court judge found that Debtor failed to pay a number of postpetition domestic support obligations, cause would exist to convert if this was a chapter 11 case.  Debtor argued that although he had not paid maintenance and support from his own income, his ex-wife and children had received payment of those obligations from a trust.  The state court judge had already rejected that argument.  Under the Bankruptcy Code, the plain language of § 1112(b)(4)(P) does not ask whether the ex-spouse is out of pocket but whether a debtor failed to pay the domestic support obligation.  Debtor presented no evidence to find otherwise and in fact admitted that he had not made the payments.  Therefore, any chapter 11 case would be reconverted for cause, and conversion to chapter 11 would be futile.  The court denied the motion to convert.

23 B 11641
Chapter 11 debtors sought conditional approval of their disclosure statement, and authority to hold a combined hearing on the disclosure statement and plan. The U.S. Trustee objected to both requests. HELD: Objection overruled. The Bankruptcy Code provides for combined hearings on disclosure statements and plan confirmation in all chapter 11 cases, not just small business cases, so long as the court deems it appropriate to ensure that the case is handled expeditiously and economically. This disclosure statement contained adequate information to enable parties to make an informed judgment about the plan. Therefore, the court conditionally approved the disclosure statement, and entered an order setting a combined hearing on plan confirmation and final approval of the disclosure statement.

23 B 6782
Chapter 11 debtor operates gas stations, some owned and the rest leased from a national company (“CAP”) that also supplies fuel and licenses its marks.  Debtor sought authority to assume its agreements with CAP.  Meanwhile, CAP sought to compel rejection or, in the alternative, relief from the stay to terminate the agreements.  HELD: Assumption of the CAP agreements was a proper exercise of the Debtor’s business judgment.  There was no dispute that Debtor had no monetary defaults.  Its agreements with a number of management companies did not constitute assignments of its interests under the CAP agreements, and so were not nonmonetary defaults.  Even if certain additional actions could be considered nonmonetary, noncurable defaults, those were not material and did not cause substantial economic detriment.  Since there were no defaults under the CAP agreements, Debtor was not required to provide adequate assurance of future performance.  Moreover, the Code does not authorize the court to compel rejection, only to fix a time within which a debtor must decide whether to assume or reject.  In light of the court’s decision to approve assumption, stay relief was not warranted.

23 B 12544
The District of Columbia sought leave to take discovery of Debtors and related entities pursuant to Fed. R. Bankr. P. 2004.  Debtors objected.  HELD: The scope of a Rule 2004 examination is broad.  Standing to take Rule 2004 examinations is not limited to creditors, but instead is allowed for any party in interest.  So long as the inquiry under Rule 2004 is relevant to the wide range of topics described in the Rule, it is appropriate.  Under this standard, the District’s request would be granted.  Although the parties disputed whether the District could plausibly allege a claim for relief against Debtors, a Rule 2004 motion was not the proper forum for resolution of that dispute.  Finally, the District had attached proposed document requests to the motion, and requested approval of those in its proposed order.  The court declined to approve the requests because the issue of whether particular questions or document requests comply with Fed. R. Civ. 45 is more appropriately resolved after subpoenas are issued.

21 B 13626
Court allowed Debtor to reopen her bankruptcy case in order to seek sanctions for violation of the discharge injunction and the automatic stay, as well as a renewed motion to avoid judicial lien, all against the same judgment creditor.   HELD: All three motions would be denied.  Prepetition, Debtor executed a warranty deed while the creditor’s foreclosure action was pending.  Although Debtor directed the grantee not to record the transaction, delivering the deed effected a transfer.  Therefore, when Debtor filed for relief under the Bankruptcy Code, she did not own the real property in question and could not claim an exemption in it.  Consequently, Debtor could not assert that the creditor’s lien impaired an exemption.  Nor could she prevail on her motion for sanctions for violation of the automatic stay.  As for the discharge violation motion, the creditor asserted that by continuing its foreclosure action, it sought only to enforce its in rem rights.  The creditor had neglected to revive its judgment within seven years, however, so there was a question regarding its ability to pursue the foreclosure action.  But, since there is a split in the Illinois courts, there was an objectively reasonable basis for concluding that the creditor’s conduct might be lawful.  Therefore, under the standard set forth in Taggart v. Lorenzen, 139 S. Ct. 1795 (2019), sanctions for violation of the discharge injunction were not warranted.

23 B 16481
During a contempt hearing in state domestic relations court regarding turnover of property awarded to his ex-wife (“Kerry”), the ex-husband (“Marty”) filed for relief under chapter 7.  The state court continued with the contempt hearing and remanded Marty to jail.  Marty filed a motion to enforce in bankruptcy court, requesting a finding that the contempt proceeding and incarceration order violated the automatic stay.  Kerry filed a competing motion to clarify that the stay did not apply to the proceedings.  HELD:  Although the contempt proceeding was part of Kerry’s efforts to collect a prepetition debt, collection of a domestic support obligation from property that is not property of the estate is excepted from the automatic stay under 11 U.S.C. § 362(b)(2)(B).  “Collection” is not limited to the receipt of a voluntary payment.  After consideration of the split in the case law, the court held that “collection” includes enforcement.  This holding is also supported by the legislative history and principles of statutory construction.  Additionally, Kerry was not seeking to collect from property of Marty’s bankruptcy estate.  The state court had already divided the marital property, and once that had been accomplished, Marty’s contingent interest in the property awarded to Kerry disappeared.  Therefore, the property she sought to collect did not became property of the estate upon the filing of Marty’s bankruptcy petition.  The court denied Marty’s motion to enforce and granted Kerry’s motion to clarify, in part.

19 B 554, 19 A 604
Plaintiffs entered into a contract with Defendant’s construction company.  The contract required Plaintiffs to pay a percentage of the total contract price at “rough-in inspection approval.”  Over several months, Plaintiffs made payments constituting a portion of that percentage after Defendant told them that inspections had been approved with conditions.  Eventually the relationship soured, Plaintiffs stopped making payments and Defendant withdrew as general contractor.  Plaintiffs sought a finding that their claim against Defendant was nondischargeable under 11 U.S.C. § 523(a)(2)(A).  HELD: Defendant made a false statement to Plaintiffs.  Although there was no consensus about whether “rough-in inspection approval” meant full approval or approval with conditions, it was undisputed that Defendant had never requested or participated in a rough mechanical inspection.  Nevertheless, Plaintiffs did not establish that Defendant made that statement with a reckless disregard for the truth or with the intent to deceive them, or that they justifiably relied on it.  Moreover, there was no basis under Missouri law to pierce the corporate veil and hold Defendant responsible for the debts of his construction company.  Mere participation in a breach of contract is not sufficient to disregard the corporate form.

22 B 5968
Debtor sought to modify his chapter 13 plan to provide for surrender of a motor vehicle.  The chapter 13 Trustee objected based on the reasoning set forth in In re Nolan, 232 F.3d 528 (6th Cir. 2000).  HELD: Debtor’s proposed plan falls within the four types of modifications permitted by 11 U.S.C. § 1329(a).  Section 1329(a) permits surrender as a plan modification.  Moreover, the modified plan would satisfy the requirements of § 1329(b)(1).  Nolan is not binding authority, and the court does not find its reasoning to be persuasive.  Debtor’s motion to modify plan is granted.

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.