Judge Janet S. Baer - Opinions

Judge Janet S. Baer

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.

16 B 28526, 16 A 00624
Plaintiff Old Republic National Title Insurance Company (“Old Republic”) filed an adversary complaint against debtor Fares Fakhuri (“Fakhuri”), seeking a determination that a debt owed to it by Fakhuri by virtue of a state court judgment was not dischargeable pursuant to §§ 523(a)(2)(A) and (a)(2)(B).  Old Republic subsequently filed a motion for summary judgment on both counts of its complaint.  No material facts were in dispute.  Old Republic contended that the state court made findings that Fakhuri committed fraud and that Fakhuri falsely represented that the title to his property was clear, while concealing the fact that there was a lien on the property.  Fakhuri failed to contest these arguments.  The Court found that the state court’s default judgment was not preclusive as it made no findings of fact, but that Old Republic established that Fakhuri made false representations in connection with the title to the property within the meaning of § 523(a)(2)(A).  As §§ 523(a)(2)(A) and (a)(2)(B) are mutually exclusive causes of action, judgment could not also be granted as to § 523(a)(2)(B).  Accordingly, the Court granted Old Republic’s motion as to the § 523(a)(2)(A) count, entered judgment on that count in its favor, and dismissed the § 523(a)(2)(B) count.

13 B 09806, 13 A 00917
Jacob Thazhathuputhenpurac (the “Plaintiff”) filed an adversary complaint against former business partner Thomas Abraham (the “Debtor”), seeking a determination that a debt owed to him by the Debtor by virtue of a state court judgment was not dischargeable pursuant to §§ 523(a)(2)(A) and (a)(4) and objecting to the Debtor’s discharge under § 727(a)(3).  Both parties subsequently filed cross-motions for summary judgment, the Plaintiff on the two nondischargeability counts and the Debtor on all three.  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) and (a)(4) 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) and (a)(4).  Accordingly, the Court granted the Plaintiff’s motion, entered judgment in his favor, and denied the Debtor’s motion.

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