Judge Jacqueline P. Cox - Opinions

Judge Jacqueline P. Cox

In re Arturo Vazquez
September 8, 2014

13 B 32174
In this Chapter 7 proceeding, the Debtor scheduled a 2013 federal tax refund in the amount of $10,576, of which he claimed $3,000 as an exempt public assistance benefit under 735 ILCS 5/12-1001(g)(1).

Trustee David Leibowitz objected, arguing that the child tax credit does not qualify as a “public assistance benefit” under the Illinois statute which allows debtors to exempt such.  In 2003 a bankruptcy court ruled that the nonrefundable portion of the child tax credit was not a public assistance benefit because it was available to higher income taxpayers and that the refundable additional child tax credit was a public assistance benefit that could be exempted because it benefited lower income taxpayers.  The Illinois statute does not limit or condition the exemption.

The Court overruled the Trustee’s objection, rejecting the argument that the Illinois statute was meant to benefit lower income individuals only and declined to make the policy choice that a debtor who claimed five personal exemptions/dependents on his tax return while reporting income of $68,824 was too affluent to benefit from the child tax credit.  The Illinois exemption statute provides for the exemption of public assistance benefits, without regard to whether they are refundable or are available only to lower income debtors. The Court explained that it is the role of the legislature, rather than the court, to limit the availability of the exemption.

12 B 50628, 13 A 00688
In this Chapter 7 proceeding, Plaintiff, the Estate of Stanley Cora, filed an amended adversary proceeding against the Debtor, John C. Jahrling, under sections 523(a)(4), 523(a)(6), 727(a)(3) and 727(a)(5) of the Bankruptcy Code asking that a debt be held nondischargeable and that the debtor be denied a discharge of all debts. Under the 523(a)(4) claim, Plaintiff sought to except from debtor’s discharge a $26,000 debt incurred while the debtor, a licensed attorney, served in a fiduciary capacity as Stanley Cora’s attorney at a real estate transaction.  Jahrling was hired to represent Cora, then 90 years of age, in the sale of his home.
Cora’s home was sold for $35,000, about one-third of its value, and the transaction did not provide for the retention a life estate promised to Stanley Cora.  After the home was sold, Cora was evicted.

A judgment for $26,000 was entered in state court against the debtor in 2007 on a legal malpractice claim.

The Court entered judgment in favor of the Plaintiff on Count I, and determined that Jahrling’s conduct in representing Cora in the sale of his home without talking to him to discern what Cora wanted and how to accomplish his goal, was a gross deviation from the standard of conduct that a law-abiding person as well as any Illinois attorney would observe in Jahrling’s situation.  The court also found that Jahrling acted recklessly and in brazen disregard of his fiduciary duty when he ignored his basic duty to communicate with the client, to prepare for the engagement and to pursue his client’s interests diligently.

The Court entered Judgment in favor of the debtor-defendant on the remaining counts, finding that Plaintiff failed to meet its burden of proof on claims under section 523(a)(6) for wilful and malicious injury and section 727 for failure to maintain records and to account for a deficiency or loss of assets.

11 B 40844, 13 A 00927
In this adversary proceeding, the Trustee sought  recovery of $101,787 in preferential transfers made by the Debtor to his mother and brother in repayment of private loans. The Defendants asserted the ordinary course defense to preference liability under section 547(c)(2), arguing that the transfers at issue were not “loans,” but were advances made from a family investment partnership to the Debtor on account of his limited partnership interest.  The Debtor and his mother and brother were general partners of the partnership.
 The Court rejected the ordinary course defense, finding that the Defendants did not meet the statute’s threshold requirement that the debt being repaid was incurred in the ordinary course of business or financial affairs of the Debtor and the Defendants.  The evidence established that the transactions were personal loans made between family members with checks drawn on the Defendants' personal bank accounts, not the partnership's bank account.
The Defendants' Answer admitted that the transfers to the Debtor were loans.  In a later pleading the Defendants said that the transfers to the Debtor were advances from the Debtor's partnership interest.  The Court granted a Motion to Strike the inconsistent assertions.

10 B 38275, 13 A 00299
In this Adversary Proceeding, Plaintiff sought a determination that a $32,994 debt owed by Debtors was nondischargeable under 11 U.S.C. § 523(a)(2)(A). Plaintiff alleged that Debtors, through their agent, made false representations in procuring a second mortgage loan needed to finance a Property purchased by the Debtor for a family member. The Court determined that the Debtors’ mortgage broker acted as their authorized agent in procuring the financing under an apparent agency theory of liability. The Court also determined that Debtors' agent made false representations when he informed the Plaintiff that the Debtors would reside at the Property and repay the loan when he knew this to be untrue.

13 B 25463
In this Chapter 7 proceeding, the Court sanctioned Debtor’s counsel for repeatedly seeking turn over of Debtor’s checking account without providing notice to J.P. Morgan Chase, a party in interest, as required by Federal Rule of Bankruptcy Procedure 9014(b) and Local Bankruptcy Rule 9013-1(A)(3).  He was also sanctioned for falsely stating that there were no funds in the bank account.

12 B 05364
In this Chapter 11 proceeding, the Court denied Movants’ Motion for Leave to File a Claim Against Trustee’s Counsel For Fraudulent Inducement.  Movants sought leave to sue the trustee’s counsel for statements allegedly made regarding a Skilled Living Facility Certificate owned by Movant, Morris Healthcare.  In denying the request, the Court held that the Movants offered insufficient legal grounds and no evidence to carry their burden to demonstrate that their claim is not without foundation, i.e., that their claim is well-founded.

09 B 49094, 11 A 2395
This matter involves the former principals of Brown’s Chicken & Pasta (“Debtor”), the franchisor of Brown’s Chicken restaurants in the Chicago area. Following the dissolution of the principals’ business relationship, litigation ensued and a judgment was entered against the Debtor in the amount of $882,000,which led to the Debtor’s bankruptcy filing in 2009.
At issue in this adversary proceeding is what property was sold in a section 363 sale of Debtor’s assets. In Count I, the Plaintiff accuses the Defendants of conversion of equipment purchased in the sale, valued at $25,582.25.  The Defendants claims that although the equipment was mistakenly included in Debtor’s schedules, it had previously been sold, and therefore, was not property of the bankruptcy estate. In Count II, Plaintiff requests declaratory relief, arguing that it properly assumed and accepted a 15-year franchise agreement between the Debtor and franchisee, Joli Inc. The Defendants counter that a subsequent 15-month franchise agreement is the operative document which was been terminated in accordance with its terms.
As to Count I, the Court ruled that Plaintiff justifiably relied on the representation in Schedule B that the equipment listed therein belonged to the Debtor. The Court noted that Schedule B was never amended to reflect the purported change in ownership, and concluded that the equipment was sold to Plaintiff in the section 363 sale.
As to Count II, the Court expressed doubts as to the authenticity of the shorter, 15-month franchise agreement, and concluded that the 15-year term franchise agreement had been properly assumed and assigned by the Plaintiff in accordance with the requirements of the Bankruptcy Code.

12 B 49219 (jointly administered)
The Sierra Club filed a motion seeking entry of an order confirming that the automatic stay was not in effect due to the police power exception of Bankruptcy Code section 362(b)(4), or, in the alternative, granting relief from the automatic stay to continue a regulatory action pending against Debtor, Midwest Generation, LLC before the Illinois Pollution Control Board. The Court held that the police power exception was not applicable, noting that the Sierra Club is not a “governmental unit” as defined by Section 101(27) of the Bankruptcy Code. The Court also noted that neither the Illinois Attorney General, nor the Illinois EPA intervened in the proceeding initiated by the Sierra Club. The Court determined that cause existed to lift the stay, after employing a balancing test as instructed by the Seventh Circuit in In re Fernstrom,938 F.2d 731, 735 (7th Cir. 1991). The court also considered the impact of the alleged environmental violations on the residents of Illinois.

In re 1555 Wabash LLC
June 19, 2013

11 B 51502

Evans Construction Company (“Evans”) filed a secured Mechanics Lien claim in the amount of $398,937.00 which represented amounts that were owed directly to Evans’ subcontractors. The Lender, Debtor's successor, objected to the claim, asserting a setoff for amounts paid directly to subcontractors and for amounts paid to correct construction work alleged to be defective. The Court reduced Evans claim to reflect amounts proven to be paid directly to subcontractors. However, after hearing the testimony of several witnesses, the Court determined that the Lender’s assertion that Evans produced faulty work was not supported by the evidence, as the defects complained of were explicitly contracted for by the parties.

In re Shelia L. Martin
April 26, 2013

09 B 42237

In this Chapter 13 proceeding, the Court granted the Debtor’s motion for sanctions, after a Mortgagee continued to collect the mortgage payments from both the Debtor and the Trustee despite the Court’s approval of a loan modification agreement. The Court’s opinion highlights the importance of parties examining whether loan modifications necessitate a subsequent chapter 13 plan amendment to accurately provide for treatment of mortgage arrears.