FirstMerit Bank, N.A. v. Soltys

• Decision Date: 11 March 2015
• Docket Number: No. 1–14–0100.,1–14–0100.
• Citation: 29 N.E.3d 568
• Parties: FIRSTMERIT BANK, N.A., as Successor in Interest to George Washington Savings Bank, Plaintiff–Appellant, v. Janek SOLTYS, a/k/a Jan Soltys, Solely in His Capacity as Trustee of the Wigupen Revocable Trust, the Bogebert Revocable Trust, and the Daseby Revocable Trust, Defendants–Appellees (John Does 1 Through 5, Individually and in Their Capacity as the Trustees of the Wigupen Revocable Trust, the Bogebert Revocable Trust, and the Daseby Revocable Trust, Defendants).
• Court: United States Appellate Court of Illinois

29 N.E.3d 568

FIRSTMERIT BANK, N.A., as Successor in Interest to George Washington Savings Bank, Plaintiff–Appellant

v.Janek SOLTYS, a/k/a Jan Soltys, Solely in His Capacity as Trustee of the Wigupen Revocable Trust, the Bogebert Revocable Trust, and the Daseby Revocable Trust, Defendants–Appellees (John Does 1 Through 5, Individually and in Their Capacity as the Trustees of the Wigupen Revocable Trust, the Bogebert Revocable Trust, and the Daseby Revocable Trust, Defendants).

No. 1–14–0100.

Appellate Court of Illinois, First District, Third Division.

March 11, 2015.

FactorLaw, of Chicago (Jeffrey K. Paulsen, of counsel), for appellant.

Law Offices of John E. Brennock, of Chicago (John E. Brennock, of counsel), for appellees.

OPINION

Presiding Justice PUCINSKI

delivered the judgment of the court, with opinion.

¶ 1 In this case we address a plaintiff creditor's claim that it can attempt to satisfy a debt discharged in bankruptcy from property transferred by the debtor to land trusts under the exception for fraudulent transfers to third parties. We hold that Illinois land trusts are merely a vehicle for property ownership where the beneficiary retains control and are not “third party” entities for purposes of the “fraudulent transfer to third parties” exceptions to bankruptcy discharge.

¶ 2 BACKGROUND

¶ 3 On July 3, 2008, Janek Soltys entered into a $1.1 million construction loan agreement with plaintiff's predecessor, George Washington Savings Bank. In connection with the loan, Soltys executed a construction mortgage in favor of George Washington Savings Bank on the property located at 4838 N. Oakley, Chicago, Illinois (Oakley property), a promissory note, and an assignment of rents.

¶ 4 Soltys also owned nine other parcels of real estate in Chicago, Illinois, at the time he obtained this loan: (1) 2935 N. Damen; (2) 3441 N. Seeley; (3) 1712 W. Byron; (4) 3649 N. Bosworth; (5) 1430 W. George; (6) 2124 W. Berteau; (7) 2446 W. Wilson; (8) 2431 W. Gunnison; and (9) 2017 W. Pensacola. On May 4, 2009, Soltys conveyed these nine other properties into three land trusts, the Wigupen Revocable Trust (Wigupen Trust), holding the Wilson, Gunnison, and Pensacola properties, the Bogebert Revocable Trust (Bogebert Trust), holding the Bosworth, George, and Berteau properties, and the Daseby Revocable Trust (Daseby Trust), holding the Damen, Seeley, and Byron properties. Each transfer was by quit-claim deed from Soltys to the applicable trust, and each deed was signed by Soltys on behalf of both the grantor and grantee. Copies of the individual trust documents are not in the record, but according to Soltys's motion and supporting affidavit, Soltys is both the trustee and the beneficiary of all three land trusts. Plaintiff did not file any counteraffidavit or point to any other evidence to dispute this fact. Plaintiff's complaint affirmatively alleges that Soltys “retained control of the properties after the transfers.”

¶ 5 The maturity date of Soltys's loan on the Oakley property was July 1, 2009. Soltys defaulted on the loan. On July 19, 2010 plaintiff, FirstMerit Bank, as successor in interest to George Washington Savings Bank, filed a foreclosure action to collect on the promissory note. A judgment of foreclosure and sale was entered on August 20, 2011 and the Oakley property was sold on October 18, 2011 for $950,000. The foreclosure court confirmed the sale on December 15, 2011, entering a deficiency judgment against Soltys in the amount of $394,839.43.

¶ 6 On May 7, 2012, Soltys filed for chapter 7 bankruptcy. Soltys disclosed his ownership interests in the properties held in trust in the Wigupen Trust, Bogebert Trust, and Daseby Trust in his chapter 7 bankruptcy petition as his personal property. Soltys also listed all his creditors in the schedules with the bankruptcy petition, including plaintiff as an unsecured creditor based on the deficiency judgment against him. The deadline for creditors to file a claim or object to the discharge was August 12, 2012. The bankruptcy trustee determined that there was insufficient equity in the properties to administer on behalf of the bankruptcy estate and filed no asset report. On August 22, 2014, Soltys obtained an order of discharge and the bankruptcy case was terminated on August 27, 2012.

¶ 7 Plaintiff received notice of Soltys's bankruptcy filing but did not file a claim in the bankruptcy case and did not object to or challenge Soltys's discharge of its debts by the August 21, 2012 bankruptcy deadline. There is no indication either from plaintiff or in the record as to why plaintiff did not timely file an adversary claim to object to the discharge of its deficiency judgment against Soltys.

¶ 8 On May 3, 2013, plaintiff filed this lawsuit against Soltys, as trustee of the trusts, alleging a violation of the Illinois Uniform Fraudulent Transfer Act (740 ILCS 160/5(a)

, 6 (West 2012)). On August 26, 2014, Soltys filed a motion to dismiss plaintiff's complaint pursuant to section 2–619 of the Code of Civil Procedure (Code) (735 ILCS 5/2–619 (West 2012) ). Soltys moved for and was granted a substitution of judge.

¶ 9 On December 9, 2013 the circuit court entered an order granting Soltys's section 2–619

motion to dismiss and stating that the order was a final order disposing of the case in its entirety. The circuit court found that Soltys was not attempting to hide the trust properties and accurately listed these properties in his bankruptcy petition. The court also found that the properties were transferred into land trusts in which Soltys was the trustee and beneficiary. The court ruled that, as the beneficiary of the land trusts, Soltys should be treated as the true owner of the trust properties and that since land trusts are not another party, plaintiff cannot attempt to extract the discharged debt from the land trusts. Plaintiff appealed.

¶ 10 ANALYSIS

¶ 11 The trial court dismissed plaintiff's complaint pursuant to section 2–619(a)(9)

of the Code, which is for dismissal based on “other affirmative matter avoiding the legal effect of or defeating the claim.” 735 ILCS 5/2–619(a)(9) (West 2012). “The purpose of a section 2–619 motion to dismiss is to dispose of a case on the basis of issues of law or easily proved issues of fact.” Hertel v. Sullivan, 261 Ill.App.3d 156, 160, 198 Ill.Dec. 574, 633 N.E.2d 36 (1994). A motion to dismiss under section 2619 of the Code admits the legal sufficiency of a plaintiff's claim but asserts certain defects or defenses outside the pleading that defeat the claim. Solaia Technology, LLC v. Specialty Publishing Co., 221 Ill.2d 558, 579, 304 Ill.Dec. 369, 852 N.E.2d 825 (2006). If the affirmative matter asserted is not apparent on the face of the complaint, the litigant is required to support the motion with an affidavit. Kedzie & 103rd Currency Exchange, Inc. v. Hodge, 156 Ill.2d 112, 116, 189 Ill.Dec. 31, 619 N.E.2d 732 (1993). The burden then shifts to the other party to provide a counteraffidavit or other proof that the defense is unfounded or requires resolution of an essential material fact. Hodge, 156 Ill.2d at 116, 189 Ill.Dec. 31, 619 N.E.2d 732. Soltys supported his motion with an affidavit. Plaintiff did not file any counteraffidavits or provide any other proof in response.

¶ 12 Plaintiff argues the court erred in granting Soltys's motion to dismiss where there are disputed issues of fact. Plaintiff also argues: (1) that it was error for the court to consider Soltys's intent; (2) that the court's ruling was based on erroneous factual findings; (3) that the court erred in dismissing the complaint when the complaint alleged a dispute as to Soltys's intent, and (4) that intent must be proven to establish fraudulent transfer.

¶ 13 But the complaint was dismissed under section 2–619(a)(6)

upon the ground “[t]hat the claim set forth in the plaintiff's pleading has been released, satisfied of record, or discharged in bankruptcy” (735 ILCS 5/2–619(a)(6) (West 2012)), not as a summary judgment motion or a motion to dismiss for failure to state a claim. Even taking the allegations in the complaint as true that there is a dispute as to Soltys's intent, the only relevant issue in this appeal is whether this action is barred by Soltys's bankruptcy discharge, which is a legal issue. Whether the trial court erred in dismissing the complaint as barred by affirmative matter is a question of law that we review de novo.

Kedzie & 103rd Currency Exchange, Inc. v. Hodge, 156 Ill.2d 112, 116, 189 Ill.Dec. 31, 619 N.E.2d 732 (1993). De novo consideration means we perform the same analysis that a trial judge would perform. Khan v. BDO Seidman, LLP, 408 Ill.App.3d 564, 578, 350 Ill.Dec. 63, 948 N.E.2d 132 (2011). Also, we can affirm a section 2–619 dismissal on any proper basis supported by the record. Raintree Homes, Inc. v. Village of Long Grove,

209 Ill.2d 248, 261, 282 Ill.Dec. 815, 807 N.E.2d 439 (2004) (noting, on review of section 2–619 motion, that the court “can affirm * * * on any basis present in the record”).

¶ 14 The relevant facts as to the “other affirmative matter avoiding the legal effect of or defeating the claim” are not in dispute. It is undisputed that Soltys listed plaintiff as a creditor in his bankruptcy petition based on the deficiency judgment, that plaintiff received notice of Soltys's bankruptcy, and that plaintiff did not timely file an adversary complaint for its alleged claim against Soltys for fraudulent transfer in bankruptcy court.

¶ 15 Section 524 of the United States Bankruptcy Code

(Bankruptcy Code) (11 U.S.C. § 524 (2012) ) sets forth the effects of discharge under a chapter 7 bankruptcy. Section 524 of the Bankruptcy Code provides that a discharge “voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor,” and acts “as an injunction against the commencement or continuation of an action * * * to collect, recover or offset any such debt as a personal liability of...