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Judge Timothy A. Barnes

Upon the vacation, in part, and remand by the District Court of this court’s order granting a motion seeking enforcement of this court’s confirmation order and damages arising from the alleged violation committed by the debtors’ prepetition surety, filed by successor to the purchaser of assets in the above-captioned bankruptcy cases, the District Court having confirmed that this court’s determination that the surety violated the injunction and release set forth in the court’s confirmation order and the debtors’ plan, but remanding for a determination of whether damages are appropriate under the standard set forth by the Supreme Court in the since determined Taggart v. Lorenzen, 139 S. Ct. 1795 (2019), held: The evidence presented by the parties and undisturbed on appeal demonstrates that the surety’s actions were “persistent violations” and “persistent contumacy” of this court’s orders, shifting the burden to the surety to demonstrate that the surety’s belief that its pursuit of the purchaser was lawful is objectively reasonable. The surety has failed to demonstrate such. A finding of civil contempt is appropriate under Taggart and that the previously awarded actual damages for reduced property value, legal costs, consulting costs and project management costs remain supported. The motion remains GRANTED and this decision concludes the issues on remand.

19bk31162, 20ap00074
Upon the debtor’s motion to dismiss a single-count adversary complaint brought under 11 U.S.C. § 523(a)(2)(A) for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), held:  As is required, the court draws all reasonable inferences in the favor of the plaintiff.  As a result, the complaint states a claim for relief, though only just.  Were it not for the liberal pleading standards for intent set forth in Federal Rule of Civil Procedure 9(b), the complaint would fail to rise above mere speculation.  But for the plaintiff’s speculation as to the debtor’s intent, the plaintiff pleads a case that is merely breach of contract, not false pretenses, false representation, or actual fraud.  Given the sophistication of the plaintiff and the plaintiff’s extensive experience bringing matters such as this to this court, the court would otherwise expect more so as to demonstrate that the complaint is not being brought for improper purposes.  As it stands, however, despite the narrowness of this ruling, the motion to dismiss must be denied.

In re Rosebud Farm, Inc.
August 25, 2020

On the chapter 7 trustee’s objection to the secured status and amount of a claim for fees and costs of counsel for the plaintiff in a prepetition action against the debtor, held: The claim for attorney’s fees and costs is unsecured as the order awarding such fees and costs in the underlying prepetition action was not recorded and the amount of such claim is limited to amount of fees awarded in the prepetition lawsuit. The trustee’s objection is, therefore, SUSTAINED.

Upon the motion for relief from the automatic stay brought by certain asbestos claimants, alleging cause exists for relief from the automatic stay to pursue only available insurance coverage, held: The movants have met the cause requirement under 11 U.S.C. § 362(d)(1). Though the Seventh Circuit’s Fernstrom factors are not clearly applicable, they are instructive nonetheless. All three factors thereunder weigh in favor of the claimants. The movants have also established that the debtor lacks equity in the subject property under 11 U.S.C. § 362(d)(2), the sole showing required for such relief in a chapter 7 case. The motion is, therefore, GRANTED as set forth in the attached Memorandum Decision.

Judge Janet S. Baer

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.

Judge Deborah L. Thorne

19-36229 20-00110


Judge Jacqueline P. Cox

 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.

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.

Chief Judge A. Benjamin Goldgar