Judge Jacqueline P. Cox - Opinions

Judge Jacqueline P. Cox

 19 B 08032 and 19 B 08037; 19 A 00740 (Consolidated with 19 A 00741)
Debtors Pramod Patel and Ankit Shah worked for several years for Plaintiff M S International, Inc. They left to work for their former employer’s competitor. They were found liable in a civil action in a California federal court for stealing their former employer’s trade secrets, based on their violations of two penal code provisions and fraud and deceit. They filed chapter 7 bankruptcy cases a few months later. M S International filed adversary complaints seeking to have the debts established in the prior litigation excepted from discharge under 11 U.S.C. section 523(a)(2)(A). Collateral estoppel was applied to bar relitigation of the prior court’s factual findings.

Summary judgment was entered by the bankruptcy judge in favor of Plaintiff M S International, Inc. The debts were found to be non-dischargeable actual frauds.

18 B 09130
The Federal Deposit Insurance Company objected to proofs of claim filed by attorneys who represented the Debtor’s spouse in a dissolution of marriage case. The state court awarded fees to the attorneys in connection with establishing support owed to the Debtor’s former spouse and their child. The state court defined the awards to the attorneys as non-dischargeable domestic support obligations. The FDIC argued that they were not domestic support obligations entitled to priority under Section 507 because they were payable to the attorneys, not to the Debtor’s former spouse or child.
The Seventh Circuit and other courts have found attorneys’ fee awards made in connection with dissolution litigation to be in the nature of domestic support obligations, not because a state court says they are domestic support obligations, but after analyzing the language and substance of the judgments in issue, the parties’ financial circumstances and the function served by the obligation.

The FDIC’s objections were overruled. The fee obligations were held to be domestic support obligations entitled to priority under section 507 of the Bankruptcy Code.

In re Marcella Marie Mance
February 6, 2020

19 B 33057
In reliance on a recent ruling in In re Wigfall, 606 B.R. 784, the court avoided the City of Chicago’s lien on the Debtor’s vehicle after finding that it was a judicial lien subject to avoidance under Section 522(f) of the Bankruptcy Code.  The City contended that it was a statutory lien which Section 522(f) did not apply to.  Its lien was authorized by statute but the City cannot immobilize and seize vehicles until it obtains quasi-judicial determinations that its ordinances have been violated.

12 B 49219
The court denied Mar-Bow Value Partners’ motion for leave to reopen these jointly administered cases as an amicus to address McKinsey Recovery & Transformation’s Rule 2014 disclosures which were submitted several years ago to secure court appointment as the Debtors’ turnaround professional.  Mar-Bow contends that a fraud was committed on the court when McKinsey failed to disclose several conflicts of interests and other disqualifying information.  The court denied the requested relief, noting that Mar-Bow is too adversarial to serve as an amicus and that the United States Trustee is the best party to investigate the matters in issue.

18 B 21202, 19 A 00107
The Debtor Karen S. Rose was found liable to Plaintiff Steven Pavletich in state court for $250,000 on a defamation claim.  She published statements on social media that the Plaintiff cheated on his wife.  This adversary trial covered only her defense that the statements in issue were true.  The Debtor’s witnesses did not testify that the Plaintiff cheated on his wife.  They unconvincingly testified that the Plaintiff told them that while drinking in a bar.

Because the state court entered a default judgment against the Debtor for her refusal to cooperate with discovery, the issues were not actually litigated, preventing the application of collateral estoppel – issue preclusion.

Generally, default judgments cannot supply the basis for dischargeability claims.

In re John W. Fliss
December 3, 2019

15 B 29567
A bank obtained a judgment in state court on a loan to two businesses that the Debtor had guaranteed.  One of the Debtor’s co-obligors arranged to have an entity he controlled buy the judgment rather than pay to have the judgment released, thereby allowing the entity to seek full payment from the Debtor.  Had the judgment been released, the Debtor would have also been released; the individual would have a right to seek contribution.

The underlying judgment was entered by confession, without litigation.  This court found that for that reason collateral estoppel, issue preclusion, did not apply and found that the individual who controlled the purchaser was its alter ego, allowing application of the merger doctrine which extinguishes a debt when the person or entity which holds a debt as owner is also an obligor on it.

The entity controlled by the individual filed a proof of claim which has been disallowed on several grounds: alter ego- merger and as a remedy for a continuing discovery violation.

19 B 07692
The court converted the Chapter 11 case filed by Debtor Royalty Properties, LLC to Chapter 7, finding that it was filed in bad faith as a litigation tactic to delay a mortgage foreclosure case filed 10 years ago.  The debt was incurred in 2006 to purchase its main asset, a 400-acre horse farm.  No payments were ever made on the debt. The court also found that the Debtor was using its creditors’ collateral to farm and sell hemp/hemp seeds, a new business for which it had no experience, not to reorganize an existing business. The Debtor and its principals unsuccessfully sued its creditors, including the Forest Preserve District of Cook County, Illinois, in state and federal courts many times before it filed for bankruptcy protection.  After the foreclosure case neared conclusion, two more lawsuits were filed against its creditors this year.

In re James Thigpen
April 20, 2019

17 B 10161
The Debtor James Thigpen maintained two Social Security numbers and made false statements to obtain Supplemental Security Income ("SSI") benefits he was not entitled to.  He pleaded guilty and was convicted of embezzling money belonging to the United States.  The sentencing district judge required him to pay restitution to the government in the amount of $49,327.17 in increments of 10% of his net, monthly income.
Thigpen eventually qualified for and received Old-Age, Survivors and Disability Insurance ("OASDI") benefits which he received for a period of time. The Social Security Administration, which administers each program under separate statutes, sought to retain 100% of his monthly OASDI benefit to satisfy the SSI overpayment debt.
Thigpen got a chapter 13 plan confirmed that provided payment of $6000 toward the restitution obligation during the plan's term.
The Court ruled that because the debts arose from separate government programs the recoupment doctrine and its exception from the automatic stay did not apply.  The Court ruled that setoff applied.  However, Bankruptcy Code Section 362(a)(7) provides that the automatic stay applies where setoff is available.  Courts have discretion to not permit setoff where it is unfair to do so, which is what the Court ruled in denying the government's motion for relief from the automatic stay to withhold 100% of Thigpen's monthly OASDI benefit to satisfy the SSI overpayment debt.

On remand from the district court, after a trial, findings were made regarding an Intervenor's assertion that she had been denied due process when she was not served in an adversary proceeding where trust assets were found to be part of a bankruptcy estate in 2010.  The court found that the Intervenor waived her objection because she waited too long to bring it up and by participating in the litigation through her agents, her brother, Richard Sharif, the Debtor, and her attorney, who she sued for legal malpractice for not asserting certain claims in the underlying matter.

16  B 17113, 17 A 00072
The court ruled in favor of the defendant on allegations that transfers made in satisfaction of merchant cash advance obligations were preferences or constructively fraudulent transfers.