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Judge Jacqueline P. Cox - Opinions

Description Date Issued
In re First Premier Funding, LLC

23 BK 00811
In November 2022, the bankruptcy case of Capital Equity Land Trust #2140215 was dismissed because the Bankruptcy Code does not allow land trusts, as opposed to business trusts, to file for bankruptcy relief.  That case was also dismissed for having been filed in bad faith.  The land trust’s beneficiary, First Premier Funding, LLC, subsequently filed for bankruptcy relief regarding the same property two months later in January 2023.

The court dismissed the later filed case on res judicata grounds and for having been filed in bad faith as a litigation tactic where Capital Equity Land Trust’s appeal of the tax deed proceeding was appealed to the Illinois Supreme Court while its beneficiary’s subsequent case proceeded in the bankruptcy court.  The Illinois Supreme Court denied the land trust’s Petition for Leave to Appeal.

Silver-Hacker v. Allen (In re Sarah Allen)

20 BK 05391, 20 AP 00214
In an adversary proceeding, the Plaintiff alleged that a debt the Defendant-Debtor owed her constituted a “willful and malicious injury” by the Debtor and thus was non-dischargeable under 11 U.S.C. § 523(a)(6).   The debt stemmed from a probate court proceeding commenced pre-petition by the Plaintiff as the Administrator of her deceased son’s (the “decedent”) estate; after multiple evidentiary hearings, the probate court found the Defendant-Debtor converted personal property of the decedent’s estate and determinized the amount of the debt (i.e., the monetary value of the converted items and Plaintiff’s legal and expert fees from the probate matter).

In a prior ruling, this court granted the Plaintiff’s motion for summary judgment in part, holding that based on collateral estoppel grounds, (1) the Debtor caused an “injury” for purposes of § 523(a)(6) and (2) the probate court’s findings about the amount of the debt precluded re-litigation of those issues; however, the court denied the motion in part, finding that a trial was necessary to determine whether the Debtor acted willfully and maliciously under § 523(a)(6) when she failed to return the items at issue.

At trial, both parties testified that the Plaintiff’s son was an artist who was living with the Defendant-Debtor in the Plaintiff’s home when he died; upon his passing, the Plaintiff asked the Defendant-Debtor to move out so she could sell the residence, which made the Debtor angry.  Two days after asking the Defendant-Debtor to move out, the Plaintiff testified that she discovered that artwork her son had made, among other items, were gone.  The Defendant-Debtor admitted taking the items and testified that she sought help from Facebook friends to remove the items and did not keep records of which items were taken or where they were stored.  The Plaintiff testified that the Defendant-Debtor returned some of the items but held on to the “important” ones (the artwork), and that the Plaintiff explained how important the missing artwork was to her.  Both parties testified that, after the Plaintiff instituted a Citation to discover assets proceeding for conversion of personal property in probate court, the probate court issued multiple court orders finding that, inter alia, the items in dispute belonged to the Plaintiff and ordering the Defendant-Debtor to return them. 

Based on the Plaintiff’s testimony showing the Defendant-Debtor’s anger she expressed when told to vacate the premise and that the Defendant-Debtor held onto the important items despite knowing how important they were to the Plaintiff, the Defendant-Debtor’s disobedience of multiple court orders requiring her to return the missing artwork, and the Defendant-Debtor’s testimony that she took the items to feel closer to the decedent, the court found her conversion of the items constituted a non-dischargeable “willful and malicious injury” under § 523(a)(6).  The court found that she acted intentionally because she took the items belonging to the probate estate without legal justification and acted with a malicious intent, since she kept the important items despite her knowledge of their importance to the Plaintiff, putting her own comfort and interests above the Plaintiff’s.

In re Todd T. Malmborg

22 BK 06603
After the claims bar date in a Chapter 13 case, an unscheduled creditor moved to vacate a confirmation order under Bankruptcy Rule 9024, arguing his due process rights were violated because he was not given notice of the bankruptcy.
Pre-petition, the creditor had sued the Debtor (his former domestic partner) in state court seeking reimbursement for payments he had made toward the Debtor’s mortgage, condominium assessments, and other home-related expenses, which he allegedly made based on Debtor’s unfulfilled promise to add creditor to the title of the condominium.  The state court case has not concluded and the Debtor disputes the creditor’s claim as to liability and damages.
The court denied the creditor’s motion, finding that his due process rights were not violated because his claim was not reduced or delayed by operation of the Bankruptcy Code.  The confirmed plan did not cover creditor’s claim, which the Debtor prefers to handle outside of bankruptcy. The court reasoned that even if the creditor had timely filed a timely proof of claim, it would permissively abstain from hearing objections to it due to concerns about the entry of conflicting judgments, forum shopping, and applying and respecting Illinois state law on domestic partnerships.  Additionally, the court reasoned that unnoticed creditors’ rights were protected in other ways, including stay relief and exception to discharge.

In re Capital Equity Land Tr., No. 2140215, No. 22-2580 (Bankr. N.D. Ill. Nov. 17, 2022)

Pre-bankruptcy the Debtor defaulted on its obligation to pay real estate taxes on its commercial property.  The  real estate was sold via a scavenger tax sale to Cook County d/b/a the Cook County Land Bank Authority.

The Debtor is an Illinois land trust, an arrangement under which the legal and equitable title to real estate is held by a trustee and the interest of the beneficiary is personal property.  The beneficiary has power to direct the trustee in dealing with the property and the right to the property’s profits.

Bankruptcy Code section 109 covers who may be a debtor. Section 109(d)states only a “person” that may be a debtor under chapter 7 may be a debtor under chapter 11.  A “person” includes corporations as provided for in Bankruptcy Code section 101(41).  Bankruptcy Code section 101(9) informs that the term corporation includes certain associations, partnerships, joint-stock companies and business trusts.

The Debtor has not asserted that it conducted any business activities pre-bankruptcy; it stated that if it regains the property (through its adversary proceeding 22 AP 00037) it will lease it.

Case law generally holds that land trusts do not conduct business activity and for that reason are not eligible for chapter 11 bankruptcy relief as business trusts.

The bankruptcy case was dismissed for ineligibility and because its filing was a litigation tactic, lacking good faith. The related adversary proceeding was also dismissed.

Caren A. Asher v. John J. Petti (In re John J. Petti and Denise A. Petti)

19 BK 00667, 19 AP 00592
The Plaintiff filed an adversary proceeding against the Defendant-Debtor, her former business partner at a failed brewery.  She alleged a $600,000 debt he owed to her, which he personally guaranteed, was non-dischargeable because it was incurred by fraud (11 U.S.C. § 523(a)(2)(A)), fraud or defalcation by a fiduciary (§ 523(a)(4)), and the Debtor willfully and maliciously injured her (§ 523(a)(6)).

She alleged she was induced into loaning $600,000 and entering the business because the Debtor made the following misrepresentations: (1) the brewery would retain distribution rights to Cook County, Illinois; (2) the Plaintiff would be appointed a Class A member of the brewery and she would review all decisions, including who retains distribution rights; and (3) the Debtor would personally guarantee the loan.  She testified that the Debtor gave away the Cook County distribution rights to a distributor behind her back without her permission and because these rights were not retained, potential investors backed out.  The Defendant-Debtor testified that it was not possible to self-distribute in Cook County because after the Plaintiff stopped funding the business, it lacked sufficient funds for marketing, advertising, employees, and truck drivers necessary for self-distribution.

The court ruled against the Plaintiff, and in favor of the Defendant, finding the debt was dischargeable because the Plaintiff could not meet her burden to prove by a preponderance of the evidence that an exception to discharge applied.  Regarding her fraud allegation under § 523(a)(2)(A), she could not show the Debtor made any false representations about the Cook County distribution rights, how the business would be run, or otherwise, since the evidence did not support her allegations.  Regarding  her § 523(a)(4) claim, she could not show an implied fiduciary relationship existed because their contract and testimony suggested the Plaintiff had at least as much power as the Debtor, if not more.  Regarding her § 523(a)(6) claim, she could not show a “deliberate or intentional injury”: it was unclear that the Defendant intentionally filed the documents that allegedly gave away the distribution rights and the parties disputed whether the Plaintiff had the right to approve any and all contracts.

In re 318 Retail, LLC

22 BK 02485
An involuntary Chapter 7 bankruptcy case was filed against the Debtor by one secured creditor with an interest in the Debtor’s real estate, a condo in a retail setting. A receiver appointed in the Debtor’s divorce case moved for dismissal or abstention. The Court denied the receiver’s motion, finding abstention under 11 U.S.C. § 305(a)(1) was not appropriate because there were no unsettled issues on non-bankruptcy law; the state-court appointed receiver had been unable to dispose of the Debtor’s real estate at issue for two years; administration of the assets by a Chapter 7 trustee would be more efficient and would not prejudice any parties; and the case served a bankruptcy purpose. The receiver also alleged the case was not eligible for involuntary bankruptcy relief because there were too few petitioning creditors. However, the court found the issue of eligibility under 11 U.S.C. § 303 was nonjurisdictional and had been waived.

In re Renee Julia Liss

The Debtor moved to reopen her bankruptcy case to avoid a judgment lien, arguing it impaired a homestead exemption in the subject property.  The Claimant objected.  The Debtor was permitted to reopen her bankruptcy case.  The request seeking lien avoidance was heard separately.  It was set for an evidentiary hearing at which the Debtor testified; the Claimant argued the Debtor lacked sufficient evidence for her valuation of the property.  Afterwards, the Court granted the Debtor’s request to avoid the lien, finding that the Claimant, as the objecting party, failed to meet its burden of proof to show the exemption was not properly claimed under Fed. R. Bankr. P. 4003(c): the Claimant failed to bring in any evidence that the property was worth more than the amount claimed by the Debtor.

In re 318 Retail, LLC

22 BK 02485 (Involuntary)
A receiver appointed in a domestic relations case to sell the husband’s assets sought leave to respond to an involuntary bankruptcy petition filed against the Alleged Debtor, a corporate entity in which the husband had an interest. A petitioning creditor, a mortgagee who had a secured interest in real estate owned by the Alleged Debtor, objected. The court ruled that the receiver could file motions to dismiss or to intervene. The receiver was not allowed to answer the involuntary petition because Bankruptcy Code section 303(a) and Bankruptcy Rule 1011(a) allow only debtors and non-petitioning general partners of debtors to do so.

Trustee v. Brown, Udell, Pomerantz & Delrahim, Ltd. (In re Michael S. Helmstetter)

19 BK 28687, 22 AP 00019
The Trustee filed an Adversary Complaint seeking to invalidate a law firm’s statutory attorney’s fees lien and to limit its recovery of fees because its purported lien failed to meet the statutory requirement to disclose its interest, the fee that the client owed the firm.  In its Motion to Dismiss, the firm asserted that it complied with the statute.  The court disagreed with the firm and denied its motion, finding that it failed to disclose the fee that the client owed.

In re Gordon Green

21 B 06189
The Chapter 7 Trustee objected to the Debtor’s claim of exemption relating to a retirement plan organized under Canadian law. The court interpreted relevant federal and Illinois statutes in sustaining the objection.  Illinois law governs exemption of assets in bankruptcy for its residents who file for bankruptcy protection.  Illinois law provides that retirement plans defined as qualified in the Internal Revenue Code are exempt.  To qualify under the Internal Revenue Code a retirement plan has to be created or organized in the United States.

In re Robert M. Kowalski

18 BK 09130
A receiver appointed by a domestic relations judge seeks over $150,000 in administrative expenses for discovering assets that did not bring value to the bankruptcy estate.  The request was denied.

Paloian v. Byline Bancorp, Inc. et al. (In re Robert M. Kowalski)

18 BK 09130, 19 AP 00626
The Trustee filed an adversary proceeding against Byline Bank alleging conversion and violation of the automatic stay because the bank cashed cashier’s checks for the Debtor and his sister that the Debtor purchased pre-petition. The sister, an attorney, claimed that the funds represented legal fees she earned representing the Debtor and entities he controlled.
The United States Attorney indicted the Debtor, his sister and others for bankruptcy fraud and other crimes. The court stayed the adversary proceeding to allow the criminal case to proceed first.  The Trustee filed a motion asking that his adversary proceeding proceed immediately.
The court denied the Trustee’s motion ruling, in part, that proceeding on this civil matter first could jeopardize the rights of the defendants in the criminal case to assert their Fifth Amendment right against self-incrimination because Byline Bank wants to depose them in this matter.

Sharif v. Horace Fox Jr., et al., (In re Richard Sharif)

09 B 05868, 20 A 00399
This adversary proceeding is Debtor Richard Sharif’s latest attempt to undo a default judgment he caused to be entered in 2010 denying him a discharge and declaring a trust to be his alter ego, making it property of the bankruptcy estate.
He alleges that the Chapter 7 Trustee Horace Fox Jr., his attorneys, a child representative in his divorce case, his estranged wife and her former attorney are civilly liable to him for violating the Racketeer Influenced and Corrupt Organizations Act, conspiracy, breach of fiduciary duty and negligence for taking his trust and other property even though the interests in issue were declared to be property of the bankruptcy estate pursuant to a default judgment entered as a sanction for his failure to comply with his discovery obligations.
The case was filed in the District Court; it was transferred to this court.
The Amended Complaint has been dismissed with prejudice.

In re Jessie M. Knight

16 B 32994
The Debtor’s attorney has been ordered to submit an accounting of $8,300 received in settlement of a Motion for Sanctions.  A creditor refused to release title/lien on a vehicle where the underlying debt had been discharged in a completed chapter 13 case.  Because the Debtor’s attorney (or his firm) had entered into the Court-Approved Retention Agreement to represent the Debtor for a flat $4,000 fee, the attorney is not entitled to receive additional legal fees absent an application to the court for such.  No one has sought additional fees.

Joseph C. Sheehan

20 B 07130
The court denied a Chapter 11 debtor’s Motion Pursuant to Rule 2004 to examine individuals and entities in Ireland and the United Kingdom for two reasons:  (1) he had not served them according to the Hague Service Convention, noting that the rules that allow nationwide service by first class mail do not apply internationally and (2) the pending adversary rule disallows Rule 2004 examinations when a related adversary proceeding is pending.  The civil rules govern discovery once an adversary proceeding is commenced.

M S International, Inc. v. Pramod Patel and Ankit Shah (In re Pramod Patel and In re Ankit Shah)

 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.

In re Robert M. Kowalski

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

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.

In re Edison Mission Energy, et. al

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.

Pavletich v. Rose (In re Karen S. Rose)

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.