Judge Jacqueline P. Cox - Opinions

Judge Jacqueline P. Cox

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.

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
July 28, 2022

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.

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.

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.

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
March 9, 2022

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
November 12, 2021

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.

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.

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.