Brian Audette, Not Individually But of the Econcepts Am., Inc. v. Kasemir (In re Concepts Am., Inc.), Case No. 14 B 34232
| Decision Date | 03 May 2018 |
| Docket Number | Adv. No. 16 A 691,Case No. 14 B 34232 |
| Parties | In re: CONCEPTS AMERICA, INC., Debtor. BRIAN AUDETTE, not individually but as Chapter 7 Trustee of the Estate of Concepts America, Inc., Plaintiff, v. TED KASEMIR, et al., Defendants. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois |
MEMORANDUM OPINION
This matter comes before the court on the motions of Rodd Goldman, One North, Inc. (EOD 74), Restaurants-America Consulting Group, Inc., d/b/a Restaurants America and Restaurants-America Trademark, Inc. (EOD 88) and Rosemont Restaurant, LLC, 1645 W. Jackson, Inc., Prime Bar America, LLC, Prime Bar Chicago, LLC and Prime Bar Tampa, LLC (EOD 91) to dismiss Count I of the complaint filed by Brian Audette, Chapter 7 Trustee of the Estate of Concepts America, Inc.
Having reviewed the complaint, the motions to dismiss, and the memoranda filed in support of and in response to the motions, the court grants the motions in part and dismisses Count I of the complaint. The remainder of these motions to dismiss will be continued to the next status date on this complaint.
In resolving a motion to dismiss, the court considers well-pleaded facts and the reasonable inferences drawn from them in the light most favorable to the plaintiff. Reger Dev., LLC v. National City Bank, 592 F. 3rd 759, 763 (7th Cir.), cert. denied, 561 U.S. 1026 (2010). For purposes of deciding this motion, the court accepts the following well-pleaded facts as true:1
Concepts America, Inc. ("Concepts") is the debtor in the underlying bankruptcy case. It is an Illinois corporation with its principal office and place of business at 1840 Pickwick Lane in Glenview, Illinois. Amended Complaint, EOD 44 at ¶ 12.2
Defendants Ted Kasemir and Roger Greenfield each own 50% of the stock in Concepts. ¶ 12-14. They were its sole officers as Secretary/Treasurer and President, respectively. ¶ 48. Concepts does not have, and has never had, a board of directors. ¶ 49.
Debtor Concepts served as a holding and management company for a group of restaurants that was controlled, operated and either directly or indirectly owned by Greenfield and Kasemir. ¶ 2.
Each restaurant was owned by its own holding company ("HoldCo"), with the HoldCos either owned by Concepts or by Kasemir and/or Greenfield. ¶ 2, 42-43. Five of the HoldCos are relevant for purposes of this opinion:
Park Tavern Rosemont is an Illinois LLC with its principal office at 1840 Pickwick. It is owned by some combination of Greenfield and Kasemir, and its primary asset is a "Park Tavern" restaurant located in Rosemont, Illinois. ¶ 21.3
Park Tavern Chicago is an Illinois corporation with its principal office at 1840 Pickwick. It is owned by some combination of Greenfield and Kasemir, and its primary asset is a "Park Tavern" restaurant on Jackson Street in Chicago. ¶ 23.4
Prime Bar Chicago is an Illinois LLC with its principal office at 1840 Pickwick. Greenfield and Kasemir each own 50% interests in Prime Bar Chicago. Its primary asset is a "Prime Bar" restaurant on Wacker Drive in Chicago. ¶ 24.
Prime Bar Tampa is an Illinois LLC with its principal office at 1840 Pickwick. It is owned by some combination of Greenfield and Kasemir and its primary asset is a "Prime Bar" restaurant in Wesley Chapel, Florida. ¶ 25.
One North is an Illinois corporation with its principal place of business in Chicago. Its primary asset is a "One North Kitchen & Bar" restaurant located in Chicago. ¶ 26.
Restaurants-America Consulting Group, Inc., d/b/a Restaurants America and Restaurants-America Trademark, Inc. (together, the "RA Entities") are Illinois corporations with their principal place of business at 1840 Pickwick. They are owned and managed by Greenfield and Kasemir. ¶ 27-¶ 28.
Prime Bar America is an Illinois LLC with its principal office at 1840 Pickwick. It is owned by some combination of Greenfield and Kasemir, and while it did not own a restaurant, it maintained a bank account where HoldCo revenue was deposited. ¶ 22.
The Trustee uses the term the "Restaurant Group" to refer collectively to Concepts, all HoldCos for which Concepts provided common services (there are or were many other HoldCos besides the five named above) and the RA Entities.5
Through Greenfield, Kasemir and its employees, Concepts helped develop new restaurants, provided legal, financial, operational and managerial services to the restaurants, and provided cash management services to all the Restaurant Group entities. ¶ 50. There were no management agreements between Concepts and any of the HoldCos. ¶ 51.
Concepts also guaranteed leases for the HoldCos. It received no compensation or reimbursement for any of the services it rendered, including provision of the guarantees. ¶ 50-51.
Greenfield and Kasemir operated the Restaurant Group as a single economic unit. ¶ 52. Landlords requested financial statements from Concepts prior to entering leases with the HoldCos, or before agreeing to provide tenant improvement funds. ¶ 56. The consolidated financial statements falsely suggested that Concepts owned assets that were producing tens of millions of dollars more in revenue than they actually were. ¶ 62.
Most of the revenue from the restaurants was deposited into one of two bank accounts, regardless of whether Greenfield, Kasemir or Concepts owned that restaurant's HoldCo. ¶ 68-69. Money from those two accounts then frequently moved between other commingled accounts maintained by Concepts. ¶ 70.
By January 2012, Concepts was bouncing checks. During that year over 100 checks from one of the two main bank accounts were returned for insufficient funds. ¶ 109. At least three HoldCos defaulted under their leases between May 2012 and February 2013 - leases that Concepts had guaranteed. ¶ 110.
Concepts was insolvent by at least the beginning of 2012, and has remained insolvent through the date of the filing of this complaint. ¶ 112.
In Count 1, the Trustee seeks to substantively consolidate Concepts with Park Tavern Rosemont, Prime Bar Tampa, Prime Bar Chicago, Park Tavern Chicago, Prime Bar America, One North, and the RA Entities ("Defendants"). He alleges that: Greenfield and Kasemir failed to maintain corporate formalities among the Defendants; their affairs are so entangled that consolidation would benefit all creditors; their funds were commingled; and inadequate financial records exist to sort out transfers made between and among Concepts and the Defendants.
Defendants move to dismiss Count 1 pursuant to Fed. R. Bankr. P. 7012(b), which incorporates Fed. R. Civ. P. 12(b)(6). Defendants assert that Count I fails to state a claim upon which relief may be granted. Their first argument is that non-debtor substantive consolidation - for none of the Defendants are debtors in cases under the Bankruptcy Code - is not an available remedy in the Seventh Circuit. Second, even if the remedy of non-debtor substantive consolidation is available, the allegations in the complaint fail to state a claim for relief.
Since this court holds that non-debtor substantive consolidation is not an available remedy in the Seventh Circuit, it need not analyze whether the allegations in this complaint rise to the level of stating a claim. Moreover, even if non-debtor substantive consolidation could be considered, it is not clear that every creditor of every Defendant received notice of the Trustee's request, and had an opportunity to be heard.
In Count 1, the Trustee seeks to substantively consolidate Concepts with the Defendants. "Substantive consolidation is the merger of separate entities into one entity so that the assets and liabilities of both entities may be aggregated in order to effect a more equitable distribution of property among creditors." Paloian v. LaSalle Bank N.A. (In re Doctors Hosp. of Hyde Park,Inc.), 507 B.R. 558, 706-07 (Bankr. N.D. Ill. 2013) (quotation omitted). It is "an extraordinary equitable remedy." Hardesty v. City Medical Nursing Center, LLC (In re Felix), 572 B.R. 892, 893 (Bankr. S.D. Ohio 2017).
One aspect that makes the equitable remedy of substantive consolidation so extraordinary is that there is no section of the Bankruptcy Code that provides for this relief.6 Substantive consolidation is a judicially created remedy that finds its roots in Sampsell v. Imperial Paper & Color Corp., 313 U.S. 215 (1941) ().
Substantive consolidation "was created and developed entirely on considerations of equity." Kelley v. Opportunity Finance, LLC (In re Petters Company, Inc.), 550 B.R. 438, 447 (Bankr. D. Minn. 2016). It is considered a "rough justice remedy [that] should be rare and, in any event, one of last resort after considering and rejecting other remedies." In re Owens Corning, 419 F. 3rd 195, 211 (3rd Cir. 2005) (quotation omitted), cert. denied, 547 U.S. 1123 (2006). See In re Archdiocese of Milwaukee, 483 B.R. 693, 699 (Bankr. E.D. Wis. 2012) ().
"There is a split of authority as to whether a bankruptcy court has the authority to substantively consolidate non-debtors assets and liabilities into a bankruptcy debtor's estate." SE Property Holdings, LLC v. Stewart (In re Stewart), 571 B.R. 460, 469 (Bankr. W.D. Okla. 2017) (emphasis in original).
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