Articles Tagged with Opinion

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BK Ct. ND IL EDIn re: Richard D. Olson, 16-01356 Chapter 13
Bankruptcy Court, N.D. Illinois, Eastern Div.
Opinion Date: June 22, 2016 Judge Schmetterer

This Memorandum Opinion addresses the feasibility and good faith of a Chapter 13 Plan of Reorganization filed on the even of foreclosure by a homeowner. The Mortgagee bank wanted to shut down the case and the Plan. The Court said “not so fast” and prepared a carefully crafted analysis of each objection filed by the bank.

Facts

Richard Olson filed four Chapter 13 Bankruptcy Petitions and Plans in a five year period- the last one on the eve of the foreclosure of his home. Ventures Trust 2013-I-H-R (“Mortgagee”), assignee of the Debtor’s original mortgage lender Bank of America, objected to confirmation of the latest Plan on the basis that it failed to comply with the confirmation requirements in 11 USC §§1325(a)(1), (a)(3), (a)(6) and (a)(7). Specifically, the Mortgagee alleged that there were inaccuracies in the Debtor’s schedules, that the Debtor had failed to correctly value certain obligations while not disclosing others at all, that the Plan was not “feasible,” and that both the case and the Plan had been filed in “bad faith.” In response, the Debtor amended his Bankruptcy Schedules to address some of the inaccuracies.

It is worth noting that the Plan under review in this case proposed curing mortgage defaults per §1322(a)(5) and reinstating monthly mortgage payments to the Mortgagee; as well as committing all the Debtor’s disposable income for the maximum commitment period of 60 months. General Unsecured Creditors are scheduled to receive not less than 2% of the face value of their claims.

The Court entered a Memorandum Opinion on the balance of the Mortgagee’s Objection before ruling on confirmation of the Plan.
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Am. Commercial Lines, LLC v. Lubrizol Corp.

U.S. Court of Appeals for the 7th Circuit
Docket No. 15-3242  Opinion: March 25, 2016

In this case about manufacturer liability in the setting of a commercial distribution relationship, a customer attempts to hold the manufacturer of a product liable for the distributor’s failures. The customer’s claims are based on the so-called “special relationship” between the distributor and manufacturer, as well as the customer’s status as an alleged intended beneficiary of the distribution arrangement. The 7th Circuit, however, was having none of it.

Factual Background

American Commercial Lines (ACL) manufactures and operates tow boats and barges that operate on US inland waterways. Lubrizol manufactures industrial lubricants and additives. VCS Chemical Corp. (VCS) distributed Lubrizol products to customers such as ACL.

Lubrizol and VCS jointly persuaded ACL to buy product through VCS. But before delivery began Lubrizol terminated VCS as a distributor – without informing ACL. VCS did not inform ACL either. Instead of telling ACL that it could no longer provide the Lubrizol product, VCS supplied a substitute. When ACL figured out the switch it sued both VCS and Lubrizol, arguing that the two must have enjoyed a “special relationship” because of their apparent cooperating in selling ACL on the idea of buying the Lubrizol product.

Procedural History

In its lawsuit in the District Court, ACL claimed that it had been duped by VCS who was acting on behalf of Lubrizol, and that as a result both companies were liable for the switch. ACL settled. Lubrizol brought a Motion to Dismiss and the District Court dismissed it. ACL appealed the dismissal of Lubrizol to the 7th Circuit.

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In re: Great Lakes Quick Lube, LP
7th Circuit Federal Court of Appeals
No. 15-2093 Decided Mar. 11, 2016

In this case the value of unexpired commercial leases was put to the test. When a popular auto-repair/oil-change franchise went into Chapter 11, its unsecured creditors sought to recoup the value of 2 unexpired leases it relinquished just before filing. The 7th Circuit analyzed the issue under 2 provisions of the Bankruptcy Code and ultimately decided that the terminated leases were an asset of the Estate and that letting them go was tantamount to an improper pre-filing transfer.

Factual Background

Great Lakes Quick Lube LP (Great Lakes) owned oil change and automotive repair stores throughout the Midwest. Its business model included selling stores to shareholders and leasing them back. One such arrangement was made with T.D. Investments I, LLP (TDI), which leased 2 stores to Great Lakes. But in 2012, under mounting financial pressure, Great Lakes terminated its TDI leases.

Adversary Case in Bankruptcy

Ultimately, Great Lakes sought Chapter 11 Bankruptcy protection less than 60 days after terminating the TDI leases. The Estate’s Unsecured Creditors’ Committee filed an Adversary action contending that those lease terminations amounted to either a preferential or fraudulent transfer by Great Lakes to TDI, and that the value of those leases should be disgorged to the Bankruptcy Estate. The Bankruptcy Court denied relief to the Unsecured Creditors’ Committee because, in its analysis, termination of the TDI leases was not a “transfer” at all – much less a preferential or fraudulent transfer.

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Henderson Square Condo. Ass’n v. LAB Townhomes, LLC
Illinois Supreme Court , Case No. 2015 IL 118139
Opinion Nov. 4, 2015 – Rehearing Denied Jan. 28, 2016

This case stems from the ill-fated Lincoln-Belmont-Ashland Redevelopment project featured on our Blog before. When a Condominium Association sued the developers based on failure to reveal construction defects, the Courts weighed in on whether the claims were time-barred. Untimely, the Appellate and Supreme Court broke with the Trial Court and found that a question of fact remained as to what the Plaintiff Condominium Association knew – or should have known – and when. Only after answering that question, the Court decided, could it be determined if certain claims were time barred.

Factual Background

In 2006 Defendants developed and sold unites pursuant to a contract with the City of Chicago for the mixed use Lincoln-Belmont-Ashland Redevelopment project. In 2011 Henderson Square Condominium Association sued the developers of the community, alleging: breach of implied warranty of habitability, fraud, negligence, breach of the prohibition in the Chicago Municipal Code as to the misrepresentation of material facts in marketing and selling real property, and breach of a fiduciary duty.

Trial Court

The Trial Court dismissed the Condo Association’s Complaint because it concluded that Plaintiffs failed to adequately plead the Chicago Municipal Code violation and breach of fiduciary duty and that certain of the Counts were time-barred pursuant to 735 ILCS 5/13-214 and 5/2-619.

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BK Ct. ND IL EDAmerican Eagle vs. Friedman, 13-AP-01199

Bankruptcy Court, N.D. Ill., Eastern Div.  Opinion: December 29, 2015.

JACK B. SCHMETTERER, Bankruptcy Judge.

This case resulted in a Summary Judgment finding despite the assertion by the Debtor-Defendant of his 5th Amendment right to be free from self-incrimination.

Specifically, this Adversary Case arose from the Chapter 7 Bankruptcy filed by Arthur Friedman (“Debtor”). Creditor-Plaintiff, American Eagle Bank (the “Plaintiff) filed a 3-count Complaint to determine the dischargeability of debt as follows:

Count I  –  per 11 U.S.C. § 523(a)(2)(A)
Count II –  per 11 U.S.C. § 523(a)(6)
Count III-  per 11 U.S.C. §§ 727(a)(3) and (a)(5)
Count IV- per  11 U.S.C. §§ 727(a)(2), (4),(5) and (7)

Count IV was added in the Amended Complaint. The Debtor answered both the Complaint and the Amended Complaint.

On August 4, 2015 the Plaintiff served Requests for Admission pursuant to Fed.R.Bankr.P.7036. The Debtor never responded, and the Plaintiff brought a Motion for Summary Judgment as to Count IV, alleging that the unanswered Requests were deemed admitted under Fed.R.Civ.P.36(a)(3). The Court agreed, and Summary Judgment was granted on Count IV.

I. JURISDICTION AND VENUE

Subject matter jurisdiction is proper in the Bankruptcy Court per 28 U.S.C. §1334, and this is a “core proceeding” under 28 U.S.C. §§157(b)(2)(A), (I), and (O) since it seeks to determine the dischargeability of a debt. Therefore, it “stems from the bankruptcy itself” and may be decided by a Bankruptcy Court (See: Stern v. Marshall, 131 S.Ct. 2594, 2618 (2011)).

II. UNCONTESTED FACTS

The Plaintiff filed a Statement of Material Facts as required by Local Rules, but the Debtor failed to file an opposing statement; thus “[a]ll material facts in [Plaintiff’s] statement…[were] deemed admitted.” Accordingly, the following was taken from the Plaintiff’s Statement of Material Facts, Debtor’s Answers, and the Requests for Admission:

Debtor was a principal and the president of Prestige Leasing (“Prestige”). Before filing, the Debtor was party to a lawsuit that was settled in his favor. As a result, the Debtor received $75,000 annually, minus attorneys’ fees.  Payments were made to Prestige until it was closed in 2011. After that time, payments were made to the Debtor. In his Answers the Debtor admitted as much, and that payments were received within a year of filing bankruptcy.

Moreover since the Debtor did not respond to the Requests for Admission within the 30-day time limit prescribed by the rules, the resulting admission could be deemed a violation of his Fifth Amendment right not to incriminate himself. Therefore, the Court’s inquiry began with a discussion of the Debtor’s Fifth Amendment rights.

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Christopher B. Burke Engineering, Ltd. vs. Heritage Bank of Central IL

Docket No. 118955 Opinion Filed November 19, 2015

In this Opinion the Illinois Supreme Court comes down on the side of common sense when it comes to lienable improvements under §1 of the Illinois Mechanics Lien Act 770 ILCS 60/1. After reversing the lower Courts however, the case was sent back down to the Circuit Court to determine whether the owner of the property “knowingly permitted” improvements to be made.

Facts

In 2006 Carol and Glen Harkins (collectively, the “Harkins”) offered to buy property from Carol Shenck (“Shenck”) for the purpose of subdividing it and developing a subdivision. Burke Engineering (“Burke”) was hired by the Harkins to perform necessary prep work related to the development of the property. So while the work performed by Burke was integral to, and resulted in, improvements to the property (plat of subdivision, etc.), at the time that the work was done under a contract with Harkins, the property was still owned by Shenck. Eventually, the Harkins closed and development began according to the work done by Burke.

Heritage Bank of Central Illinois (“Heritage”) financed the purchase of the property in 2007 and held a Mortgage Lien. But thanks to the Great Recession, work stopped in 2008 and the Harkins failed to pay Burke (or anyone else). As 2008 dragged on however, Burke had still not been paid and eventually the company filed a Mechanics Lien against property – which by this time was owned by the Harkins (the “Lien”). In response, the Harkins filed Bankruptcy. This left Burke to foreclose its lien or not get paid at all.

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BRC Rubber & Plastics, Inc. v. Cont’l Carbon Co.
U.S. Court of Appeals for the Seventh Circuit
Docket: 14-1555 and 14-1416  Opinion: November 5, 2015

In this opinion the 7th Circuit Court of Appeals sets the record straight about an alleged Output-Requirements Contract and settles a dispute based on the terms of a supplier agreement.

Facts

Continental Carbon Company (CCC) sells carbon black, a material used in rubber products. BRC Rubber & Plastics (BRC) makes rubber products for the auto industry. In 2010 the companies entered into a contract under which CCC agreed to supply about 1.8 Million lbs./yr. of carbon black to BRC.  In 2011 however, Continental could no longer keep up with demand from other customers and had to refuse certain orders from BRC, which inturn put BRC in a bind with its customers, causing a chain reaction.BRC sued, alleging that CCC had breached the contract.

Procedural History

The Indiana District Court treated the agreement between them as an “Output/Requirements” contract that obligated CCC to sell as much carbon black as BRC wanted while requiring BRC to buy all its carbon black from CCC. On that basis, the District Court concluded, CCC had indeed breached its obligation by failing to sell as much carbon black as BRC wanted.
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EAR vs. Brandt/Brandt vs. Horseshoe Hammond, 14‐2174
Appeal from District Court (ND IL ED) 12‐cv‐00271
Decided Oct. 13, 2015

Introduction

In an Adversary Proceeding in the Chapter 11 Bankruptcy case of Equipment Acquisition Resources (EAR), Plan Administrator William Brandt (Brand) sought to avoid and recover the so-called “fraudulent transfers” made to EAR’s founder that he subsequently lost gambling at Horseshoe Casino.

Facts

EAR was established in 1997 to manufacture and refurbish machinery for use in creating technology products. Beginning in 2005 however, it also began defrauding creditors through crooked equipment financing activities. As a result, founder Sheldon Player and a company Officer named Malone pocketed about $17 Million each.

It was not until September 2009 that an outside forensic accounting firm hired by EAR’s Board of Directors detected the fraud. In response to the revelation about the wrongdoing, the company’s Board and all Officers resigned. EAR’s shareholders then elected William Brandt as the sole Board Member and Chief Restructuring Officer. Shortly thereafter the company sought Chapter 11 Bankruptcy protection.

Procedural History

Brandt filed an Adversary proceeding against Player and Malone in the Chapter 11 case pursuant to 11 U.S.C. 544, 548, and 550 to avoid and recover the transfers made to them. Brandt prevailed, then had to collect from Horseshoe.

In the ensuing case in the District Court, Horseshoe moved for Summary Judgment under the aegis of the statutory “Good Faith” defense in 11 U.S.C. 550(b)(1). Horseshoe prevailed in the District Court.

Brandt appealed the District Court’s ruling, arguing that it had misinterpreted §550(b)(1) and, in addition, it should have granted his prior Motion to Compel production of documents related to investigations conducted by Horseshoe concerning Player.

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Fin. Freedom Acquisition, LLC v. Standard Bank & Trust Co.

Illinois Supreme Court, 2015 IL 117950 Opinion Date: September 24, 2015

In this case arising from a 2009 “reverse equity” mortgage, the issue was whether a Bank acting as Trustee of a trust holding property was entitled to the same relief under the Truth in Lending Act (TILA) 15 U.S.C. 1601 as the actual consumer borrowers. Want to guess what happened?

Facts

OneWest sued Standard, as Trustee, to foreclose a reverse equity adjustable-rate mortgage: the typical killer loan that Banks promoted to borrowers who later found themselves buried in unsustainable debt. In a stroke of ironic genius, Standard filed a Counterclaim in the foreclosure action based on violations of TILA by OneWest.

Procedural History

The Circuit Court dismissed Standard’s Counterclaim; the decision was affirmed by the Appellate Court because Standard was deemed not to an “obligor” under TILA entitled to rescind the transaction. To this point, Illinois Courts were confirming the common-sense notion that a pro-consumer law should not be used to benefit yet another Bank.

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