CITIBANK, NA v. Park-Kenilworth Industries, Inc., 89 C 5280.
| Decision Date | 14 November 1989 |
| Docket Number | No. 89 C 5280.,89 C 5280. |
| Citation | 109 BR 321 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | CITIBANK, N.A., Plaintiff, v. PARK-KENILWORTH INDUSTRIES, INC. and Philip F. Ignarski, Defendants. |
Gus A. Paloian, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, Ill., for Thomas E. Raleigh.
Ronald DeKoven, Jonathan Greenblatt, Shearman & Sterling, for Citibank, N.A. and also by James A. Cherney, Latham & Watkins, Chicago, Ill.
Thomas D. Rosenwein, Chicago, Ill., for Park-Kenilworth Industries, Inc.
Plaintiff Citibank, N.A. ("Citibank") brought this diversity action against Park-Kenilworth Industries, Inc. ("PKI") and its former secretary, Philip F. Ignarski. Citibank seeks to recover $50 million worth of Park-Kenilworth stock which was pledged to Citibank as security for a loan but which had previously been pledged to Beverly Bank, which is not a party to this action. In the alternative, Citibank seeks to recover $50 million in damages. William J. Stoecker is the sole shareholder of PKI, and is currently the subject of an involuntary Chapter 11 bankruptcy proceeding in which Citibank, among others, has filed a claim. Before the court is the motion of Thomas E. Raleigh, the trustee for Stoecker's bankruptcy estate, ("Trustee" or "Bankruptcy Trustee") to intervene pursuant to Federal Rules of Civil Procedure 24(a) and (b), and to transfer this action to the bankruptcy court pursuant to 28 U.S.C. § 157(a) and Local Rule 2.33(a). PKI also moves for a transfer to the bankruptcy court. Citibank opposes both the motion to intervene and the motions to transfer. For the following reasons, the Trustee's motion to intervene is granted, and the Trustee's and PKI's motions to transfer are granted.
On February 21, 1989, an involuntary bankruptcy proceeding was begun against William J. Stoecker in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division, in an action captioned In re William J. Stoecker, case number 89 B 02873. At the time the proceeding was commenced, Stoecker was the sole shareholder of PKI. In March of 1989, pursuant to 11 U.S.C. § 1104, Bankruptcy Judge Squires ordered the appointment of a bankruptcy trustee. Thomas E. Raleigh was later appointed to this position.
On May 11, 1989, Beverly Bank filed an adversary complaint in the bankruptcy court against ten defendants, including Citibank, PKI, and the Trustee. Beverly Bank claimed that it had a prior perfected security interest in the shares of PKI, which were pledged to it in October, 1987. Beverly Bank also alleged that Stoecker subsequently pledged the same stock ten months later to Citibank, and sought a declaratory judgment that its security interest in PKI was a first lien with priority over all other claims. On June 12, 1989 Citibank answered Beverly's bankruptcy complaint and filed a cross-claim against the Trustee in which it asked the bankruptcy court to impose a constructive trust for Citibank's benefit on either the estate's interest in the stock or the stock itself. The Trustee answered Beverly Bank's complaint and counterclaimed against both Beverly Bank and Citibank on June 29, 1989. On August 15, 1989, Citibank filed a "proof of claim" in the bankruptcy court, asserting claims against Stoecker for fraud, negligent misrepresentation, negligence and breach of contract in connection with the pledge of stock.
On July 3, 1989, Citibank filed this action against PKI and Philip F. Ignarski, one of PKI's former officers. Citibank did not name the Trustee, Beverly Bank, or any other creditor as a defendant. The six-count complaint alleges violations of the Illinois Uniform Commercial Code by PKI, negligence by PKI, and common-law fraud on the part of PKI and Ignarski. Essentially, Citibank contends that PKI and Ignarski induced Citibank to increase the amount of a loan to PKI and to extend its due date by falsely representing that PKI's shares were free of any encumbrances, so that Citibank accepted a pledge of PKI stock. In fact, Citibank alleges, the shares had previously been pledged to Beverly Bank. In its complaint, Citibank asks for, inter alia, the following relief: An order compelling PKI to acquire the stock in question from Beverly Bank and to transfer it to Citibank; judgment against PKI in excess of $50 million; punitive damages against PKI; judgment against Ignarski, in excess of $50 million; and punitive damages against Ignarski.
The Trustee seeks to intervene in this suit, alleging that, as bankruptcy trustee, he has an interest in the assets of Stoecker's estate, and that the stock in question makes up the major portion of the estate. The trustee seeks either intervention as of right, under Federal Rule of Civil Procedure 24(a), or permissive intervention, under Rule 24(b). In addition, both the Trustee and PKI seek to refer and transfer this action to the bankruptcy court pursuant to 28 U.S.C. § 157(a) and Local Rule 2.33(a). These parties allege that this action must be transferred to the bankruptcy court under both these provisions because it arises from, or is related to, an existing Title 11 proceeding. In opposition to these motions, Citibank asserts that the Trustee does not have a sufficient interest in this suit to intervene; that the bankruptcy court has no jurisdiction over this claim; and that it is entitled to a jury trial, over which the bankruptcy court has no power to preside. We find that the Trustee has a right to intervene under Rules 24(a) and (b), and that this case must be transferred to the bankruptcy court pursuant to 28 U.S.C. § 157(a) and Local Rule 2.33(a).
The Bankruptcy Trustee initially seeks to intervene pursuant to Federal Rule of Civil Procedure 24(a)(2), which provides for intervention as of right where the applicant has an interest in the property or transaction which is the subject of the suit and "the disposition of the action may as a practical matter impair or impede the applicant's ability to protect" his interest, "unless the applicant's interest is adequately represented by existing parties." Fed.R. Civ.P. 24(a)(2). The stock at issue in this suit is estate property, so the Trustee has an interest in this suit by virtue of his duty under the Bankruptcy Code to "be accountable for all property received" in the bankruptcy estate. 11 U.S.C. § 704(2) (1988); see 11 U.S.C. § 323 (1979) and 11 U.S.C. § 1106 (1988).
Citibank asserts that the Trustee does not have a cognizable interest in this action sufficient to allow him to intervene as of right. Citibank relies on Rigco v. Rauscher Pierce Refsnes, Inc., 110 F.R.D. 180 (N.D.Tex.1986), which held that the sole shareholders of a debtor corporation could not intervene in the debtor's lawsuit against a third party. Rigco, however, does not support Citibank's contention that the Trustee cannot intervene in this suit. In Rigco the shareholders argued that they had an interest in the debtor's suit because they were responsible to the bankruptcy claimants for any deficiency in the bankruptcy estate. Because any recovery by the debtor corporation in its suit would belong to the bankruptcy estate and reduce the shareholder's liability for the deficiency, they argued that they had an interest in ensuring that the corporation secured the largest possible recovery. 110 F.R.D. at 183. The court characterized this interest as a "purely economic" one which was insufficient to justify intervention under Rule 24(a)(2). Id. at 184.
The key to the Rigco holding, however, does not lie in the court's use of the indefinite term "economic interest" to describe an insufficient interest under Rule 24(a)(2). The court also stated that for an interest to be sufficient under Rule 24(a)(2) it had to be a "direct and substantial interest in the proceedings." 110 F.R.D. at 183. In Rigco the shareholders' interest was indirect because the shareholders had no direct interest in the subject matter of the suit; they rather had a general interest in seeing the debtor corporation recover a large sum of money, which would reduce their own liability in the bankruptcy proceeding. In this case, the Trustee has a direct interest in the subject matter of the suit. As noted above, the Trustee has a statutory duty to protect the assets of the estate, and the PKI shares are a major estate asset. This suit directly concerns the shares themselves. In fact, the suit seeks to establish the ownership of the stock — Citibank contends that it should recover either the stock or its value because it has the primary security interest in the stock. If one of Citibank's prayers for relief in this case were to be granted and Citibank were to be awarded the PKI stock, one of the most valuable assets of the bankruptcy estate would be lost. The trustee has an interest in preventing this loss because he has a statutory duty to protect the assets of the estate. Rather than having a general shareholder's interest in the value of a company's stock, as Citibank contends, the Trustee has a direct interest in the property that is the subject of this suit.
Citibank also contends that the Trustee has failed to demonstrate that PKI, as a defendant in this suit, will not adequately represent the Trustee's interest, as required by Rule 24(a). An intervenor must satisfy the burden of showing that he possesses a sufficiently different interest from the litigant in order to intervene. Hoots v. Commonwealth of Pennsylvania, 672 F.2d 1133, 1135 (7th Cir. 1985). Here, however, the Trustee has met this burden. The interests of the Bankruptcy Trustee and PKI are different enough so that the Trustee cannot rely on PKI to protect his interest. The complaint in this case accuses PKI and Ignarski of fraud but also makes substantial allegations of fraud about the bankrupt, Stoecker. Plaintiff's Complaint at 4, 6, 7. It is certainly foreseeable that these three parties will point...
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