Bell v. Ruben

• Decision Date: 26 November 2013
• Docket Number: No. 12 C 8311,12 C 8311
• Parties: LAURALEE K. BELL, not individually but as TRUSTEE OF THE LAURELEE K. BELL 1993 TRUST, Appellant, v. PHILLIP E. RUBEN, Appellee.
• Court: U.S. District Court — Northern District of Illinois

LAURALEE K. BELL, not individually but as TRUSTEEOF THE LAURELEE K. BELL 1993 TRUST, Appellant, v. PHILLIP E. RUBEN, Appellee.

No. 12 C 8311

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

Dated: November 26, 2013

Judge Thomas M. Durkin

MEMORANDUM OPINION AND ORDER¹

This case is an appeal from a U.S. Bankruptcy Court decision granting summary judgment in favor of Phillip E. Ruben and against Lauraiee K. Bell as Trustee of the Laureelee K. Bell 1993 Trust ("Bell" and "the Trust"). Bell contends that the bankruptcy court improperly granted summary judgment in favor of Ruben and that summary judgment should have been granted in her favor. For the reasons that follow, the decision of the bankruptcy court is affirmed in part, and reversed in part.

BACKGROUND

The parties generally agree on the underlying facts; this case arises out of the management of Bell's Trust, Bell filed suit in the Circuit Court of Cook County,Illinois, Case No. 08 L 011554, against Ruben, his former law firm Levenfeld Pearlstein, LLC ("Levenfeld"), and numerous others. ROA at 338 ¶ 8.² She alleged that those defendants wrongfully took $30 million from her. ROA at 338 ¶ 8. Eight of the thirteen counts in the complaint were directed at Ruben, and others. R. 2-3 at 5. Count I was for fraudulent misrepresentation; Count II was for fraudulent concealment; Count. Ill was for unjust enrichment based on negligent misrepresentation; Count VII sought the imposition of a constructive trust; Count X was for legal malpractice; and Counts XL XII, and XIII sought damages for breaches of fiduciary duty and civil conspiracy and an accounting. R. 2-3 at 5-6.

Ruben and his former law firm moved on two occasions to compel Bell to submit her claims to arbitration. ROA at 338 ¶ 9. On December 7, 2009, Bell agreed to arbitrate her claims before the American Arbitration Association ("AAA"), pursuant to its applicable rules and procedures for commercial arbitration. ROA at 338 ¶ 10; R. 2-3 at 6.

On April 8, 2010. Ruben filed for Chapter 7 Bankruptcy in the U.S. Bankruptcy Court for the Northern District of Illinois, Case No. 10-bk-15179. ROA at 338 ¶ 11. Two months later, on June 2, 2010, Bell initiated arbitration proceedings against Levenfeld and its individual attorneys (the "Arbitration") but did not include Ruben because of his bankruptcy filing, choosing instead to pursue her claims against Ruben in the bankruptcy court. ROA at 338-39 ¶¶ 11-12. Bell subsequently filed a Proof of Claim regarding Ruben on July 14, 2010, and "theAdversary Complaint to Determine Dischargeability of [Ruben's] Debt" on July 21, 2010 (the "Adversary Proceeding," case number 10 A 1514). ROA at 339 ¶ 12.

On September 28, 2010, a general discharge order was entered in the bankruptcy case; this occurred before Ruben answered the Adversary Complaint. ROA at 339 ¶ 13. The bankruptcy case was closed two days later on September 30. ROA at 389 ¶ 14.

The Adversary Proceeding against Ruben and the Arbitration involved the same evidence and essentially the same claims. ROA at 339 ¶ 15. Accordingly, on December 30, 2010, Ruben filed a motion to stay the Adversary Proceeding, so he could join and participate in the pending Arbitration because litigating the issues separately "would have been piecemeal, duplicative, and inefficient," as well as would "have put the parties at risk of inconsistent rulings and findings." ROA at 339 ¶ 15. In response, on January 5, 2011, Bell filed a motion to amend before the Arbitration Panel (the "Panel") to add Ruben as a respondent in the Arbitration. ROA at 340 ¶¶ 16-17. The Panel granted the motion to amend on January 10, 2011, and Ruben formally joined the Arbitration as a respondent. ROA at 340 ¶ 19.

On February 24, 2011, the bankruptcy court entered an agreed order which stayed the Adversary Proceeding "until the completion of the Arbitration Proceeding or until further order of this Court." ROA at 340 ¶ 20. The Arbitration carried on.

On October 18, 2011, Bell settled her claims against two of the respondents In the Arbitration. ROA at 340 ¶ 21. "The parties to that agreement agreed to bear their own costs and expenses relating to the Arbitration." ROA at 340 ¶ 21. Theremaining parties, including Ruben, proceeded to a hearing before the Panel. That hearing took place from October 31 to November 17, 2011, with Ruben testifying on October 31, November 1, and November 2. ROA at 340 ¶ 22.

On February 1, 2012, Bell settled all of her claims against the other two remaining respondents in the Arbitration, the law firm and Gary Blackman, who also agreed to bear their own costs and expenses resulting from the Arbitration. ROA at 341 f 23. Additionally, pursuant to that settlement agreement, Bell agreed to dismiss with prejudice certain counts against Ruben: Counts III (negligent misrepresentation), IV (unjust enrichment), V (constructive trust), VI (legal malpractice), VII (breach of fiduciary duty), and XI (accounting). ROA at 341 ¶ 23. On February 10, 2012, the law firm and Blackman were dismissed with prejudice from the Arbitration, as well as the aforementioned claims against Ruben. ROA at 341 ¶ 24. Ruben became the only remaining respondent in the Arbitration. ROA at 341 ¶ 25. And the only claims remaining, and thus the only claims submitted to the Panel for judgment, were those against Ruben based on fraud, fraudulent concealment, and civil conspiracy. ROA at 341 ¶ 26, 353-54 II 30; R. 2 at 11.

The Panel issued its decision on March 5, 2012. R. 2-1. The decision included the following language which is relevant to this appeal:

After application of all setoffs to which Respondent. Philip E. Ruben is legally entitled and after consideration of the claims against Respondent Ruben that have been dismissed by Claimant and that remain pending for award, Claimant's damages proven to be attributable to the actions of Respondent Philip E. Ruben have been compensated and therefore Claimant shall take nothing against Respondent Philip E. Ruben on her remaining claims.

The administrative fees and expenses of the American Arbitration Association that were advanced by Claimant totaling $21,200.00 and the compensation and expenses of the arbitrators that were advanced by Claimant totaling $150,304.54 shall be borne by Respondent Philip E. Ruben. The administrative fees and expenses of the American Arbitration Association that previously were advanced by Respondents jointly and severally and the compensation and expenses of the arbitrators that previously were advanced by Respondents jointly and severally shall be borne by Respondents as advanced. Respondent Philip E. Ruben therefore shall reimburse Claimant, the sum of $171, 504.54, representing that portion of said fees and expenses in excess of the apportioned costs previously incurred by Claimant.

The above sums are to be paid on or before 30 days from the date of this Award. Interest thereafter shall accrue on all unpaid amounts awarded herein above at the maximum post-judgment, interest rate applicable to judgments for tort damages, if any, permitted under Illinois law.

R. 2-1 at 2. The Panel also stated, "All claims not expressly granted herein are hereby, denied." R. 2-1 at 2. The parties agree that the Panel had the authority to apportion fees and expenses pursuant to then-AAA Rule No. R-50, which was in effect at the time. ROA at 206 ¶ 20; R. 2 at 8. Rule No. R-50 provided that "expenses, including required travel or other expenses of the arbitrator or AAA representatives 'shall be borne equally by the parties, unless they agree otherwise or unless the arbitrator in the award assesses such expenses or any part thereof against any specified party or parties.'" ROA at 206-07 ¶ 20 (quoting AAA Commercial Arbitration Rule R-50, available at http://www.adr.org/aaa/ faces/rules).³

Bell and Ruben returned to the bankruptcy court to continue with the Adversary Proceeding in light of the Panel's ruling. ROA at 6. The only money at issue was the $171,504.54 "fees and expenses" awarded to Bell in the Panel's decision (the "Award"). R. 2-1 at 2. Bell sought to enforce the Award; Ruben sought to discharge it.

On July 3, 2012, Bell filed an Amended Complaint in the Adversary Proceeding. ROA at 26-90. Counts I, II, and III of Bell's Amended Complaint seek judgment in Bell's favor on the Award because the Award is exempt from the September 28, 2010 discharge order pursuant to 11 U.S.C. § 523(a)(2), (4), and (6).⁴ ROA at 83-85. Count IV is a Declaratory Judgment that the Award "is a post-petition, post-discharge obligation of Phil Ruben that is not discharged by virtue of his prior Chapter 7 Bankruptcy Case[.]" ROA at 85-89.

After Bell filed her Amended Complaint, the parties each filed motions for summary judgment. ROA at 7, No. 53; No. 59. Bell first argued summary judgment should be granted in her favor on Count IV because Ruben engaged in "post-petition ancillary litigation (the Arbitration)," so the Award is not subject to the prior discharge order. ROA at 184-89. If the bankruptcy court made that determination,Counts I, II, and III of her Amended Complaint would be mooted. ROA at 185. Alternatively, if the bankruptcy court determined the Award was a pre-petition obligation. Bell argued she was entitled to summary judgment on Counts I, II, and III because debts related to fraud and intentional conduct are not dischargeable. See 11 U.S.C. §§ 523(a)(2), (4) & (6). Bell also argued, without citing to any case or statutory law, that Ruben should not be put in a better position than if the fraud claims had originally been litigated in the Adversary Proceeding. ROA at 194-95. Conversely, Ruben argued, first, that the "shall take nothing" language of the Panel's opinion demonstrated that Ruben was not liable on the fraud claims; therefore, because collateral estoppel applied, that decision precluded any judgment in Bell's favor on Counts I, II, and III. ROA at 209-11. Ruben's second argument was that ...