18 B 14064, 18 A 00252
Plaintiff Lake Forest Bank & Trust Company (the “Bank”) filed an adversary complaint against John T. McMahan (the “Debtor”), seeking a denial of the Debtor’s discharge pursuant to 11 U.S.C. § 727(a)(2)(A). The Bank argued that the Debtor was not entitled to a discharge because in the year prior to the filing of his chapter 7 bankruptcy case he engaged in a scheme involving three bank accounts over which he had sole control to transfer and/or conceal large sums of month with the intent to hinder, delay, and defraud the Bank. A trial on the Bank’s complaint ultimately took place without the Debtor present, effectively making the Court’s decision a default judgment. However, the Court and the Bank provided the Debtor with every reasonable opportunity to appear, participate, and defend himself. After conducting the trial at which the Bank presented an offer of proof on its evidence, the Court found, given all of the relevant documentary evidence, the parties’ arguments, and case law, that the Debtor made all of the transfers at issue in violation of various citations to discover assets issued by the Bank, as well as a wage deduction/turnover order entered by the state court, with the intent to hinder, delay, and defraud the Bank. As such, the Court concluded that the Debtor was not entitled to a discharge under § 727(a)(2)(A).

21 B 03680, 21 A 00106
Parent Petroleum, Inc. (“Parent”) filed an adversary complaint against debtor-defendant Amit Gauri, seeking both a determination that a debt owed to Parent by Gauri was nondischargeable under § 523(a)(2)(B) and denial of Gauri’s discharge under §§ 727(a)(2), (a)(3), (a)(4), (a)(5), (a)(6), and (a)(7). Parent subsequently filed a motion for partial summary judgment as to its claims under §§ 727(a)(2), (a)(3), (a)(4), (a)(6), and (a)(7). Parent argued that, through the application of § 727(a)(7), Gauri’s discharge should be denied under the remaining subsections of § 727(a) primarily due to actions that Gauri took in relation to the bankruptcy of one of his companies, Black Dog Chicago, LLC (“BD Chicago”). During BD Chicago’s chapter 11 bankruptcy case, Gauri applied for PPP and EIDL loans on behalf of the company and three of its operating subsidiaries. On each of these loan applications, Gauri falsely attested that neither BD Chicago nor the applicant company was in bankruptcy. Once these loans were approved, Gauri transferred the resulting funds and concealed them from the Court and BD Chicago’s creditors. Based on these actions and others, the Court found that Gauri was not entitled to a discharge under §§ 727(a)(2), (a)(3), (a)(4)(A), and (a)(7). As to Parent’s claim under § 727(a)(6), the Court found that there was a genuine issue of material fact as to whether Gauri refused to obey the case management procedures order entered in the BD Chicago bankruptcy case. Thus, the Court concluded that Parent was not entitled to summary judgment under § 727(a)(6).

22 A 00128, 22 B 02890
Margaret Burke filed an adversary complaint against Leonard S. DeFranco, seeking a determination that a debt owed to her by DeFranco by virtue of a state court judgment was not dischargeable pursuant to §§ 523(a)(2)(A), (a)(4), and (a)(6). Subsequently, Burke filed a motion for partial summary judgment on the claims under § 523(a)(4) in Count II of her complaint. No material facts were in dispute. Burke argued that DeFranco was precluded from re-litigating the factual issues decided by the state court under the doctrine of collateral estoppel. DeFranco contended that collateral estoppel was not applicable because the state court findings did not establish any of the elements necessary for nondischargeability under § 523(a)(4). The Court found that the factual issues sought to be precluded precisely aligned with those that came before the state court for purposes of collateral estoppel and that the state court’s findings of fact, as well as DeFranco’s admissions, established, as a matter of law, all of the elements required for nondischargeability under § 523(a)(4). Accordingly, the Court granted Burke’s motion on Count II and entered judgment in her favor on that count.

21 B 09761, 22 A 00177
Richard Fogel, chapter 7 trustee (the “Trustee”) for the estate of Michael J. Palmieri (the “Debtor”), filed an adversary complaint against Specialty Industries II, LLC, Karen Witt, and Nicholas R. Recchia, in his capacity as trustee of The Byron Street Land Trust (together, the “Defendants”), seeking to avoid, as fraudulent transfers, the transactions made on and after July 21, 2014 which caused the real property located at 6021 Byron Street in Rosemont, Illinois (the “Byron Property”) to be removed from the Debtor’s bankruptcy estate pursuant to §§ 5(a) and 6 of the Illinois Uniform Fraudulent Transfer Act (the “UFTA”) and § 544 of the Bankruptcy Code. The Defendants moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6). According to the Defendants, a claim under the applicable provisions of the UFTA must be brought within four years after the transfer was made. Because the challenged transfers occurred outside that time period, the Defendants said, the complaint was time barred. The Trustee argued that § 544 allows him to avail himself of the ten-year statute of limitations available to the IRS under the Internal Revenue Code, because the IRS had filed a claim in the Debtor’s bankruptcy case. Agreeing with the majority of courts that have addressed the issue, the Court found that the unambiguous language of the statute allows the Trustee to step into the shoes of the IRS and use the ten-year limitations window available to the IRS in order to avoid the challenged transfers. The Court also found that the Trustee had sufficiently alleged facts to establish a reverse veil-piercing claim at this stage of the litigation. Accordingly, the Court denied the Defendants’ motion to dismiss.

17 B 11461
Harvey Edelstein and Kathleen Mastro-Edelstein (the “Debtors”) filed a motion seeking a determination, pursuant to Federal Rule of Bankruptcy Procedure 3002.1(h), that: (1) they cured their pre-petition mortgage arrears owed to Bank of America, N.A. (the “Bank”), and (2) the amount of their post-petition mortgage arrears was $5,494.96. The parties agreed on the amount of post-petition arrears owed; thus, the sole issue was whether the Debtors had cured their pre-petition arrearage. The Debtors argued that because their chapter 13 plan was confirmed after adequate notice to the Bank and they paid the amount of pre-petition arrears listed in that plan, the Bank was not entitled to recover any additional money for pre-petition arrears. The Bank, in turn, argued that the amount of pre-petition arrears owed was governed by the allowed proof of claim that it had filed, to which the Debtors had not objected. The Court held that its order confirming the Debtors’ plan was an enforceable, final judgment that bound the Bank to the plan’s terms, pursuant to the United States Supreme Court’s decision in United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010), as well as other applicable authority. As such, the Court ruled that the Debtors had cured their pre-petition mortgage arrears.

15 B 35358, 17 A 00390
The Official Committee of Unsecured Creditors (the “Committee”) of LB Steel, LLC (the “Debtor”) filed an adversary complaint against Steelcast Limited (“Steelcast”) under 11 U.S.C. §§ 547(b), 550(a), and 502(d), seeking avoidance and recovery of $252,393 in payments made by the Debtor to Steelcast in the ninety days leading up to the bankruptcy filing (the “preference period”), as well as disallowance of any claims that Steelcast may file against the Debtor unless or until those payments are returned to the Debtor’s estate. A three-day trial was held in December 2020, at which the only issue in dispute was the Debtor’s solvency during the preference period. Based on the documentary and testimonial evidence presented at the trial, the Court concluded that the Debtor was insolvent at the time the relevant payments were made. As such, the Court held that the Committee could avoid and recover the payments made by the Debtor to Steelcast during the preference period. The Court also found that the Committee’s disallowance claim was moot, because Steelcast did not file any claims—either pre- or post-petition—in the Debtor’s bankruptcy case, and the claims bar date for filing non-governmental claims had long passed.

20 B 13380, 20 A 00346
Kenneth Phlamm (the “Plaintiff”), individually and on behalf of Travel Express Aviation Maintenance, Inc. (“TEAM”), filed an adversary complaint against former business partner Matthew T. Mukenschnabl (the “Debtor”), seeking a determination that a debt owed to him and TEAM by the Debtor by virtue of a state court judgment was not dischargeable pursuant to §§ 523(a)(2)(A), (a)(4), and (a)(6). After voluntarily dismissing three counts of the complaint derivatively asserted against the Debtor by TEAM, the Plaintiff filed a motion for summary judgment on the three remaining counts. No material facts were in dispute. The Plaintiff argued that the Debtor was precluded from re-litigating the factual issues decided by the state court under the doctrine of collateral estoppel. The Debtor contended that the elements needed to prevail pursuant to the statute under which the state court complaint had been brought were not identical to those required under §§ 523(a)(2)(A), (a)(4), and (a)(6) and that, thus, collateral estoppel was not applicable. The Court found that the factual issues sought to be precluded were the same as those that came before the state court for purposes of collateral estoppel and that the state court’s findings of fact established, as a matter of law, all of the elements required for nondischargeability under §§ 523(a)(2)(A), (a)(4), and (a)(6). Accordingly, the Court granted the Plaintiff’s motion on the three remaining counts and entered judgment in his favor.

15 B 27967, 16 A 00489
Plaintiff PNC Bank, N.A. (“PNC”) filed an adversary complaint against Paul L. Leongas (the “Debtor”), seeking a denial of the Debtor’s discharge pursuant to 11 U.S.C. §§ 727(a)(2), (a)(3), (a)(4)(A), (a)(4)(D), and (a)(6). PNC argued that the Debtor was not entitled to a discharge because he engaged in a continuing course of actions in which he intentionally concealed his income and assets in order to defraud his creditors, failed to produce required financial information, and knowingly and fraudulently made false oaths and accounts in connection with his financial situation. After conducting an evidentiary hearing, the Court found, given the documentary evidence and testimony at trial, that the contributions made by businesses owned and operated by the Debtor’s family members to pay his living expenses were not loans and should have been disclosed on the Debtor’s schedule I as income; that his continued use of his residence—despite its transfer first to a childhood friend and later to others—constituted a concealment under the doctrine of continuing concealment; and that virtually all badges of fraud required for a determination that the Debtor intended to hinder, delay, and defraud his creditors had been established. As such, the Court concluded that the Debtor was not entitled to a discharge under § 727(a)(2). The Court also found that the Debtor failed to produce adequate records from which his financial situation and business transactions could be ascertained with any kind of accuracy; that he made “false oath[s] or account[s]” by filing bankruptcy documents with numerous misstatements and omissions, most of which were made with an intent to deceive; and that he knowingly and fraudulently failed to provide the chapter 7 trustee with all relevant documents and papers to which the trustee was entitled. Accordingly, the Court concluded that the Debtor was also not entitled to a discharge under §§ 727(a)(3), (a)(4)(A), and (a)(4)(D). The Court rejected the Debtor’s argument that he relied on the advice of his attorney—thereby negating any fraudulent intent—because the Debtor was not able to establish either that he provided all of the necessary financial disclosures to his lawyer or that his reliance on the lawyer’s advice was reasonable. The Court dismissed Count IV, under which PNC objected to discharge under § 727(a)(6)(A), for lack of prosecution.

17 B 07037, 17 A 00319
Plaintiff and judgment creditor Nick Boscarino filed an adversary complaint against debtor-defendant Lewis J. Borsellino, seeking (1) a determination that the debt owed to him by Borsellino was not dischargeable pursuant to § 523(a)(6), and (2) denial of Borsellino’s bankruptcy discharge pursuant to § 727(a)(2)(A).  Boscarino subsequently filed a motion for summary judgment, arguing that principles of claim and issue preclusion precluded Borsellino from relitigating the factual issues decided in prior state court proceedings. According to Boscarino, the state court found that (1) Borsellino was the owner of a boat which was subject to Boscarino’s citation lien at the time it was sold, and (2) Borsellino committed perjury in his state court trial testimony and backdated an agreement to shield ownership of the boat. In response, Borsellino argued that neither of those issues had been decided by the state court and claimed that he did not own the boat, as it had been transferred to an LLC that he managed. After reviewing the state court record and considering the elements of the statutory provisions at issue, the Court concluded that the necessary facts had been previously decided in Boscarino’s favor to support his § 523(a)(6) claim. Specifically, the Court held that the record established that (1) Borsellino had intentionally transferred the boat in violation of the citation lien, (2) the transfer caused injury to a property interest held by Boscarino, and (3) the transfer was made without just cause or excuse. Thus, summary judgment was granted as to the § 523(a)(6) count. The Court further held that, although the state court found that Borsellino owned the boat at the time of the transfer, it did not find that he had fraudulently created the agreement or committed perjury. As such, summary judgment was denied on the § 727(a)(2)(A) count.

17 B 06666, 17 A 00424
Dimitri Karras filed an adversary complaint against Bryce Stirlen, seeking a determination that a debt owed to him by Stirlen was not dischargeable pursuant to §§ 523(a)(2)(A), (a)(4), and (a)(6). In response, Stirlen filed a counterclaim, asserting that he was entitled to set off the alleged debt pursuant to an asset purchase agreement (the “APA”) under which his company American Weapons Components, Inc. (“AWC”) acquired the assets of Lycurgan, Inc., a corporation owned by Karras. Subsequently, Karras filed two motions to dismiss the counterclaim under subsections (b)(1) and (b)(6) of Rule 12 of the Federal Rules of Civil Procedure. As to the Rule 12(b)(6) motion, Karras argued that Stirlen’s setoff defense failed because Karras had no personal liability under the APA since he executed the agreement as Lycurgan’s agent. Karras further argued that only AWC, Stirlen’s corporate principal, could assert a setoff defense. Finding that both Karras and Stirlen were guarantors under the APA and that AWC’s registration was suspended for failure to pay taxes, the Court observed that a guarantor may raise any defense available to its principal, as well as any defenses or setoffs that the principal could have asserted had it not been unable to defend itself by virtue of its suspension. Ultimately, the Court found that Stirlen’s setoff defense was pleaded sufficiently to survive the 12(b)(6) motion and thus denied Karras’s motion to dismiss for failure to state a claim upon which relief can be granted. In his 12(b)(1) motion, Karras argued that Stirlen had no standing to assert setoff because that right became estate property when Stilen filed for bankruptcy and only the chapter 7 trustee has standing to prosecute claims belonging to the estate. Karras further argued that the Court had no jurisdiction to decide the setoff defense because that defense constituted a common law breach of contract claim, a non-core matter under Stern v. Marshall, 564 U.S. 462 (2011). The Court found that Stirlen could pursue his setoff right as an affirmative defense existing under California law (which governed the interpretation of the APA); that the “heart” of the Stern decision went to a bankruptcy court’s ability to render a final judgment which was not a matter at issue; and that even if the Court did not have plenary authority over Stirlen’s defense, resolution of the matter would fall within the Court’s ancillary jurisdiction. As such, the Court denied Karras’s 12(b)(1) motion to dismiss.

18 B 28055
Debtor Fayyaz Karim (“Karim”) filed a motion for entry of an order of contempt against the Illinois Department of Revenue (“IDOR”), alleging that IDOR had violated the discharge injunction by attempting to collect a penalty debt that had been discharged in his chapter 7 bankruptcy case. The penalty debt at issue was imposed under the Illinois Cigarette Tax Act, 35 ILCS 130/1 et seq., which prohibits the possession of contraband cigarettes. According to Karim, the penalty was a tax penalty within the meaning of § 523(a)(7) and was discharged by operation of subsection (B) of that section, which provides for the discharge of tax penalties imposed with respect to a transaction or event that occurred more than three years before the petition date. IDOR responded by arguing that the penalty debt had not been discharged because it was either not a tax penalty within the meaning of § 523(a)(7) or, if the debt was a tax penalty within the meaning of the statute, because the penalty was imposed with respect to a transaction or event that occurred within three years of the petition date. The Court held that the penalty debt at issue was a tax penalty and that the relevant transaction or event for purposes of § 523(a)(7) occurred within three years of the petition date. As such, the Court found that the debt was nondischargeable and that IDOR thus did not violate the discharge injunction. Accordingly, the Court denied Karim’s motion for entry of an order of contempt.

16 B 40442
Gina B. Krol (the "Trustee"), chapter 7 trustee for the bankruptcy estate of Gerald O. McInerney (the "Debtor"), filed a motion for turnover of the estate’s interest in the Debtor’s federal and state income tax refunds for 2016 pursuant to 11 U.S.C. §§ 541 and 542. At issue was the proper allocation of those refunds which were filed jointly by the Debtor and his non-debtor spouse. The Trustee argued that the refunds should be divided equally between the Debtor and his spouse under the "50/50 Rule." The Debtor contended that, based on an agreement executed with his spouse after the filing of the bankruptcy petition, the refunds should be allocated using a "Hybrid Approach" of the "Separate Filings Rule" and the 50/50 Rule, whereby any tax benefit derived from the spouses’ decision to file jointly is equally divided between them, and the rest of the refund is then apportioned based on the balance owed or the refund due as calculated on hypothetical married-filing-separately tax returns. The Court found that, without a pre-petition agreement between the parties, the determination as to the division of the refunds must be made by the Court. Examining the various methods that other courts have used, as well as the Hybrid Approach advanced by the Debtor, the Court held that the appropriate method of allocating the refunds between the Debtor and his non-debtor spouse was the "Withholding Rule," under which the refund is divided between spouses in proportion to their respective tax withholdings during the relevant tax year. Applying that Rule, the Court found that, absent adjustments consensually made by the parties, the estate’s interest in the refunds totaled $6,254.91, and the Debtor was ordered to turn over to the Trustee, in addition to the amount he had already tendered, the sum of $5,035.42.

13 B 10864, 16 A 00552
Chapter 7 trustee and plaintiff Brenda P. Helms filed an adversary complaint against Metropolitan Life Insurance Company, debtor Michael K. O’Malley, his spouse Tracy Zellmer, and Zellmer’s company TAMO, LLC, seeking: a declaratory judgment that O’Malley’s interest in an excess benefit retirement plan was non-exempt property of the estate (Count I), turnover of the proceeds of the retirement plan (Count II), avoidance and recovery of certain post-petition transfers related to the retirement plan (Counts III and IV), an award of damages for willful violations of the automatic stay (Count V), and disallowance of any claims filed by Zellmer or TAMO (Count VI).  Helms subsequently filed a motion for summary judgment on Counts I–V, and O’Malley filed a cross-motion for summary judgment on all six counts of the complaint.  At the outset, O’Malley argued that the complaint was barred because the Trustee failed to file a timely objection to the exemption of the retirement plan and that the Trustee was judicially estopped from challenging the validity of the exemption.  The Court found that the Trustee had no obligation to file an objection because O’Malley failed to properly claim the exemption in the plan in the first instance.  The Court further found that the Trustee was not judicially estopped from bringing the adversary proceeding because pursuit of the action would not give the Trustee an unfair advantage or impose on O’Malley an unfair detriment and applying judicial estoppel would adversely affect O’Malley’s creditors.  As for the cross-motions for summary judgment, the Court found that there were no genuine issues of material fact in dispute, that the Trustee was entitled to judgment as a matter of law on Counts I–IV, and that O’Malley was entitled to judgment as a matter of law on Count V.  Regarding Counts I–IV, the Court found that: the retirement plan was non-exempt, and the plan and related proceeds constituted property of the estate (Count I); O’Malley’s unauthorized payment election under the plan was an avoidable post-petition transfer which restored the payment election right to the estate (Count III); the Trustee was entitled to both avoidance and recovery post-petition transfers made under the plan (Count IV); and the Trustee was entitled to turnover of those proceeds (Count II).  As to Count V, the Court found as a matter of law that a trustee cannot recover damages under § 362(k) and that the circumstances of the case did not warrant the exercise of the Court’s civil contempt power under § 105(a).  Because neither Zellmer nor TAMO filed any proofs of claim, Count VI was dismissed by the Court sua sponte.

16 A 00223, 15 B 04436
Plaintiff Christopher Salgado filed an adversary complaint against debtor-defendant David E. Lenoci, II, seeking a determination that a state court judgment debt for battery is not dischargeable under 11 U.S.C. § 523(a)(6).  Salgado alleged that Lenoci struck him in the face with a baseball bat during a fight, while Lenoci claimed that someone else struck Salgado with a bicycle kickstand.  At a bench trial, the Court admitted various documents into evidence and heard the testimony of Salgado, his brother, and Lenoci.  After considering the evidence and testimony, the Court determined that the doctrine of issue preclusion did not bar Lenoci from disputing that he struck Salgado because: (1)  Lenoci did not have a full and fair opportunity to be heard in the prior criminal and civil state court cases that arose from the same facts, and (2) the records from the prior suits lacked specific findings as to which issues had been actually litigated and determined.  Turning to the merits of Salgado’s § 523(a)(6) claim, the Court found that Salgado and his brother were more credible than Lenoci.  Thus, the Court accepted Salgado’s version of the story and found both that Lenoci injured Salgado and that Lenoci’s actions were willful and malicious.  Accordingly, the Court concluded that the state court judgment debt was not dischargeable under § 523(a)(6).

18 B 13481, 18 A 00212
Debtor George Burciaga filed an adversary complaint against chapter 7 trustee Alex D. Moglia, seeking a determination that certain severance pay is not property of the estate under 11 U.S.C. § 541(a)(1) but, rather, constitutes excluded post-petition earnings under 11 U.S.C. § 541(a)(6). The parties subsequently filed cross-motions for judgment on the pleadings. The Debtor argued that the severance pay is not property of the estate because his receipt of that pay was contingent on his execution of a separation agreement and his subsequent compliance with the post-petition conditions outlined therein. The Trustee argued that the severance pay is property of the estate because it is based on both the Debtor’s pre-petition employment and pre-petition termination from that employment. Applying the U.S. Supreme Court’s "sufficiently-rooted test" in Segal v. Rochelle, 382 U.S. 375 (1966), the Court found that the severance pay is both pre-petition property of the bankruptcy estate and post-petition earnings for services excluded therefrom and concluded that a fair allocation of the pay between the estate and the Debtor is 50/50. As such, the Court granted in part and denied in part both parties’ motions for judgment on the pleadings.

12 B 17133, 18 A 00021
Plaintiffs Richard and Elizabeth Reuland (the “Reulands”) filed an adversary complaint against the Internal Revenue Service (the “IRS”), seeking (1) a determination that the IRS had violated the discharge injunction by attempting to collect certain tax debt that had been discharged through their chapter 13 bankruptcy case, (2) a permanent injunction against the IRS barring future attempts to collect that debt, and (3) attorney’s fees and costs.  The IRS moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted because the tax debt at issue is not dischargeable pursuant to 11 U.S.C. §§ 1328(a)(2) and 523(a)(1)(B)(ii) (excepting from discharge debts for tax returns filed both late and less than two years before bankruptcy).  The Reulands conceded that the tax debt was nondischargeable pursuant to those provisions.  They argued, however, that under United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010), the tax debt at issue was discharged because their plan provided for the debt and the IRS failed to object to or appeal confirmation.  In response, the IRS argued that Espinosa was inapplicable because the Reulands’ plan did not contain any specific language purporting to discharge the tax debt.  After distinguishing Espinosa from the Reulands’ case and considering other cases with similar facts, the Court held that the tax debt at issue had not been discharged because it is nondischargeable under §§ 1328(a)(2) and 523(a)(1)(B) and the Reulands’ plan did not contain specific language that provided for the discharge of the debt.  Thus, the Court granted the IRS’s motion, and dismissed the Reulands’ complaint with prejudice because, as a matter of law, it failed to state a claim upon which relief can be granted.

15 B 26538, 15 A 00771
Raymond Michael Chuipek filed an adversary complaint against his former employer Scott C. Gilmore, seeking a determination that a debt owed to him by Gilmore by virtue of a state court judgment entered on a jury verdict was not dischargeable pursuant to § 523(a)(2)(6). Chuipek subsequently filed a motion for summary judgment, arguing that the questions answered by the jury were sufficient to meet the willful and malicious standard of § 523(a)(2)(6) and that, thus, Gilmore was precluded from re-litigating the factual issues decided in the state court under the doctrine of collateral estoppel. Gilmore contended that although the jury found in Chuipek’s favor, there was no finding of subjective intent to willfully and maliciously injure Chuipek. Therefore, Gilmore asserted, collateral estoppel could not be applied. Based on a close inspection of the entire state court record, the Court found that the facts necessarily implied by the jury’s verdict established that Gilmore’s conduct was willful and malicious and that it caused injury to Chuipek for purposes of § 523(a)(6). Accordingly, the Court concluded that the prior case presented the same issues and that collateral estoppel applied to the factual record in the nondischargeability action, thus barring Gilmore from relitigating the underlying facts decided in the state court case. As such, the Court granted Chuipek’s motion and entered judgment in his favor.

15 B 28696, 16 A 00026
Plaintiff Tillman Enterprises, LLC (“Tillman”) filed a three-count adversary complaint against Todd S. Horlbeck (“Horlbeck”), seeking a determination that a debt owed to it by Horlbeck for alleged securities violations and fraud was not dischargeable pursuant to 11 U.S.C. §§ 523(a)(19), (a)(2)(A), and (a)(2)(B).  After Tillman amended the complaint and Horlbeck’s motion to dismiss was denied, the parties’ filed cross-motions for summary judgment.  No material facts were in dispute.  Tillman argued that Horlbeck had violated securities laws by reporting inflated account values while managing a hedge fund in which Tillman had invested.  In addition, Tillman alleged that Horlbeck misrepresented and omitted material information while the parties negotiated the settlement of those securities claims.  Horlbeck admitted to reporting inaccurate values but contested whether Tillman could prove the requisite elements of its claims.  After establishing that it had jurisdiction to determine liability for the violation of securities laws under § 523(a)(19), the Court found that Tillman had failed to prove that Horlbeck violated any securities laws.  As such, the Court granted Horlbeck’s motion for summary judgment under § 523(a)(19) and denied Tillman’s cross-motion.  Turning to §§ 523(a)(2)(A) and (a)(2)(B), the Court first found that Tillman could maintain claims under both subsections because they were based on separate alleged misrepresentations.  On the merits, the Court found that Horlbeck had failed to disclose liabilities on a financial statement, and that he had misrepresented information about a regulatory investigation and his management of the hedge fund.  Tillman, in turn, had relied on those misrepresentations and omissions while deciding to enter into a settlement agreement and extend credit under a promissory note.  Thus, the Court found that the debt Horlbeck owes under the settlement agreement and promissory note is not dischargeable under §§ 523(a)(2)(A) and (a)(2)(B), granted Tillman’s motion for summary judgment, and entered judgment in its favor.

15 B 35985, 17 A 00192
Plaintiff David R. Brown (the “Trustee”) filed an adversary complaint against Robert J. Ferrari (the “Debtor”), seeking a denial of the Debtor’s discharge pursuant to 11 U.S.C. §§ 727(a)(2)(A), (a)(3), and (a)(5).  The Trustee argued that the Debtor was not entitled to a discharge because: (1) he transferred or removed equity in his home within one year of filing his bankruptcy petition with intent to hinder, delay, or defraud creditors by executing a junior mortgage on the home in favor of his friend; (2) he failed to keep or preserve books and records from which his financial condition could be ascertained; and (3) he failed to satisfactorily explain the loss or disposition of almost $250,000 that he allegedly borrowed from his friend.  After conducting an evidentiary hearing, the Court found that, given the documentary evidence and testimony at trial, the Debtor’s records were inadequate to allow the Court, the Trustee, and the Debtor’s creditors to trace his financial dealings with any kind of accuracy and that the Debtor did not offer any reasonable justification for his failure to keep or preserve financial records.  Thus, the Court held that that failure supported denial of the Debtor’s discharge under § 727(a)(3).  The Court further found that the Debtor failed to provide a satisfactory explanation for the disposition of both the equity in his home and the loan proceeds from his friend.  Accordingly, the Court also held that the Debtor was not entitled to a discharge pursuant to § 727(a)(5).  Although the Court found that the removal of equity from the Debtor’s home was a transfer for purposes of § 727(a)(2)(A), the evidence did not sufficiently establish that the Debtor actually intended to defraud his creditors.  As such, the Court did not find in the Trustee’s favor on the § 727(a)(2)(A) count of the complaint and, thus, that count was dismissed.

15 B 17676, 16 A 00020
Plaintiff City of Chicago (the “City”) filed an adversary complaint against debtor Ronald Spielman (“Spielman”), seeking a determination that a debt owed to it by Spielman by virtue of a federal district court default judgment was not dischargeable pursuant to §§ 523(a)(2)(A) and (a)(7).  The City subsequently filed a motion for summary judgment on both counts of its complaint.  No material facts were in dispute.  The City contended that the district court’s order for default judgment against Spielman under the City’s False Claims Ordinance precluded relitigation of the claims in the adversary proceeding due to principles of collateral estoppel.  Spielman argued that because a default judgment was entered, the claims were not actually litigated and that, thus, collateral estoppel could not be applied against him.  The Court found that the district court’s default judgment precluded further litigation of the claims because the district court made findings of fact, Spielman had a full and fair opportunity to litigate the claims, and, in fact, he did litigate the City’s final motion for default judgment, which was decided on its merits.  Accordingly, the Court granted the City’s motion on both counts of the complaint and entered judgment in favor of the City.