Galvan v. Durchslag (In re Durchslag)

• Decision Date: 15 March 2012
• Docket Number: Bankruptcy Case No. 10 B 28986,Adversary Case No. 10 A 1524
• Parties: In re: ROBERT ALLEN DURCHSLAG, Debtor. LUIS GALVAN, as Trustee of the 2007 Amendment and Restatement of Trust Agreement Establishing the Irving P. Durchslag Revocable Trust, Executor of the Estate of Irving P. Durchslag, and Trustee of the Marjorie Sabbath Durchslag Revocable Trust, Plaintiff, v. ROBERT ALLEN DURCHSLAG, DEBRA A. DURCHSLAG, DONALD DURCHSLAG, TOM SANSONE, not individually but as Agent of the INTERNAL REVENUE SERVICE OF THE UNITED STATES TREASURY, and MICHAEL CANULLI, Defendants.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

IN RE: ROBERT ALLEN DURCHSLAG, Debtor.LUIS GALVAN, as Trustee of the 2007 Amendment and Restatement of Trust Agreement Establishing the Irving P.Durchslag Revocable Trust, Executor of the Estate of Irving P. Durchslag, andTrustee of the Marjorie Sabbath Durchslag Revocable Trust, Plaintiff,

v. ROBERT ALLEN DURCHSLAG, DEBRA A. DURCHSLAG, DONALDDURCHSLAG, TOM SANSONE, not individually but as Agent of theINTERNAL REVENUE SERVICE OF THE UNITED STATES TREASURY, and MICHAEL CANULLI, Defendants.

Bankruptcy Case No. 10 B 28986

Adversary Case No. 10 A 1524

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

Dated: March 15, 2012

Honorable Susan Pierson Sonderby

MEMORANDUM OPINION

This matter comes before the court on the motion of defendant-lien holder Michael Canulli ("Canulli") to dismiss the First Amended Adversary Complaint for Interpleader (the "amended complaint") of plaintiff Luis Galvan ("Galvan"), in his capacity as trustee of therevocable trusts of Irving P. Durchslag ("Irving") and Marjorie Sabbath Durchslag ("Marjorie") and as executor of Irving's estate, for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1), made applicable by Federal Rule of Bankruptcy Procedure 7012(b), or, in the alternative, to abstain from deciding the case. For the reasons set forth below, the motion to dismiss is granted.

I. FACTS AND BACKGROUND

In deciding a motion to dismiss under Rule 12(b)(1), the court must accept as true all well-pleaded factual allegations in the complaint and draw all reasonable inferences in favor of the plaintiff. Capitol Leasing Co. v. FDIC, 999 F.2d 188, 191 (7th Cir. 1993). When issues are jurisdictional, Rule 12(b)(1) gives the court authority to consider evidence beyond the pleadings as well. United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 946 (7th Cir. 2003); Berg v. eHome Credit Corp., No. 08 C 05530, 2011 WL 761486, at *1 (N.D. Ill. Feb. 25, 2011); Baker Dev. Corp. v. Mulder (In re Mulder), 307 B.R. 637, 640 n.2 (Bankr. N.D. Ill. 2004). All of the evidence needed to decide the motion in this matter, however, can be gleaned from the amended complaint and the exhibits attached thereto.

On October 21, 1981, Irving executed a declaration of trust creating the Irving P. Durchslag Revocable Trust. (See Compl. ¶ 21 & Ex. B, p. 6.) Thereafter, on December 30, 1992, Marjorie executed a declaration of trust, under which she established the Marjorie Sabbath Durchslag Revocable Trust. (Id. ¶14 & Ex. B.) Marjorie died on September 16, 1995. (Id. ¶ 20.) According to the terms of her trust, the residuary trust terminated at the time of Irving's death (or upon her death if Irving died before she did), and the balance of the principal and anyincome was to be distributed to the "then acting trustee to be administered under the provisions of the declaration" creating Irving's trust. (See id. ¶¶ 21 & Ex. B, p. 6.) On March 8, 2007, Irving amended his trust agreement. (Id. ¶ 13.) Under the revocable trust created thereunder, his children, Robert Allen Durchslag (the "Debtor"), Debra A. Durchslag ("Debra"), and Donald Durchslag ("Donald"), were the beneficiaries. (Id. ¶¶ 2-4, 13, 17-19, 23 & Ex. A.) Irving died on January 1, 2008. (Id. ¶ 22.) Pursuant to both Marjorie's and Irving's trusts, Galvan was designated successor trustee and currently serves in that capacity under both trusts. (Id. ¶¶ 15, 16.)

To date, not all of the assets of Marjorie's and Irving's trusts have been distributed.¹ (Id. 24, 32.) Among those assets is a bank account over which the Debtor has control. (Id. ¶¶ 26, 34.) In addition, Irving's trust included a business entity he owned called Singles Roofing Company ("Singles"), which was to be allocated to the Debtor. (Id. ¶ 35.) Section 4.5 of Irving's trust, however, provides that if Irving transferred the interest in Singles to the Debtor prior to Irving's death, the transfer would be deemed an advancement and the Debtor's share of the trust assets would be reduced by $ 180,000, the fair market value of the business as of December 31, 2006. (Id. ¶¶ 35, 39 & Ex. A.) According to the Debtor, the interest in Singles was transferred to him on March 8, 2007, about ten months before Irving's death. (Id. ¶ 38.)

On August 18, 2009, the Debtor filed a complaint in the Circuit Court of the Sixteenth Judicial Circuit in Kane County, Illinois, alleging that Singles had been overvalued and that, pursuant to amended terms of agreement executed by the Debtor and Irving, the sum of $100,600that the Debtor had remitted to Irving was payment in full for the company. (Id. ¶ 36, 37, 40.) The complaint sought entry of an order authorizing Galvan, as trustee, to accept the Debtor's payments, credits, and adjustments as payment in full of his purchase of Singles; instructing Galvan to prepare a final accounting; and directing him to disburse to the Debtor his share of the remainder of both Irving's and Marjorie's trusts and Irving's estate. (Id. ¶¶ 41-43.) On September 24, 2009, Galvan filed a counterclaim for interpleader, asking the state court to order him to pay the proceeds of both trusts to the clerk of the court "to be adjusted, litigated and settled among the [b]eneficiaries"; to discharge him as trustee; and to enter judgment in his favor for costs. (Id. ¶¶ 51.) On May 11, 2010, Debra and Donald filed an answer to the Debtor's complaint, as well as counterclaims alleging that the Debtor did not pay in full for Singles, that he committed fraud, and that he breached his fiduciary duty with respect to the checking account over which he had control. (Id. ¶¶ 45, 46.) On June 1, 2010, Canulli, the Debtor's former attorney in the state court lawsuit, filed a notice in that court, claiming an attorney's lien in the sum of $97,867.58.² (Id. ¶ 52 & Ex. J.) The state court case has not been resolved and is currently pending. (Id. ¶ 51.)

On June 22, 2010, Galvan, in his capacity as trustee, received a notice of levy from the Internal Revenue Service (the "IRS") against the Debtor in the amount of $3,414,468.47. (Id. ¶ 54.) A week later, on June 29, 2010, the Debtor filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code. (Id. ¶ 8.)

Subsequently, on July 23, 2010, Galvan filed a two-count complaint in the bankruptcycase seeking the same relief he requested in the state court. On August 10, 2010, he filed an amended complaint that was substantially similar to the original complaint. Under Count I of the amended complaint, Galvan requests that the court: (1) order the beneficiaries and lien holders to "interplead and adjust, litigate and settle among themselves their respective demands" as to how the proceeds of the trusts should be distributed; (2) order Galvan to pay the proceeds of the trusts into the registry of the bankruptcy court; (3) discharge Galvan "as [t]rustee and from further liability"; and (4) enter judgment for Galvan for costs and fees against the beneficiaries and lien holders. (Compl. at 13.) Under Count II, Galvan asks the court to grant him leave to submit a final accounting for both Irving's and Marjorie's trust estates, to approve those final accountings once submitted, and to discharge Galvan as trustee. (Id. at 14.)

On June 7, 2011, Canulli filed the instant motion to dismiss. According to the motion, dismissal pursuant to Rule 12(b)(1) is sought in the first instance because the court lacks subject matter jurisdiction over the proceeding. Alternatively, Canulli contends that, should the court find that it does have subject matter jurisdiction, abstention is mandatory pursuant to 28 U.S.C. § 1334(c).

II. DISCUSSION

A Rule 12(b)(1) motion requires dismissal of claims over which the court lacks subject matter jurisdiction. Fed. R. Civ. P. 12(b)(1). Jurisdiction is the "power to decide" and must be conferred on a court before that court can hear a case or controversy. Equip. Acquisition Res., Inc. v. United States (In re Equip. Acquisition Res., Inc.), 451 B.R. 454, 458 (Bankr. N.D. Ill. 2011) (internal quotation omitted); In re Dental Profile, Inc., No. 09 C 6160, 2010 WL 431590,at *1 (N.D. Ill. Feb. 1, 2010) (quoting In re Chi., Rock Island & Pac. R.R. Co., 794 F.2d 1182, 1188 (7th Cir. 1986)); see also State of Ill. v. City of Chi., 137 F.3d 474, 478 (7th Cir. 1998) (noting that subject matter jurisdiction is "the first question in every case"). A plaintiff faced with a Rule 12(b)(1) motion bears the burden of demonstrating that the jurisdictional requirements have been met. Equip. Acquisition Res., 451 B.R. at 459; Dental Profile, 2010 WL 431590, at *1 (citing Kontos v. U.S. Dep't of Labor, 826 F.2d 573, 576 (7th Cir. 1987) (finding that when a defendant moves for dismissal under 12(b)(1), the plaintiff bears the burden of establishing that the court has subject matter jurisdiction)).

Section 1334(b) of title 28 of the United States Code is the statutory source of bankruptcy jurisdiction and, thus, the starting point for the court to determine whether jurisdiction exists. Zerand-Bernal Grp., Inc. v. Cox (In re Cary Metal Prods., Inc.), 152 B.R. 927, 930 (Bankr.N.D. Ill. 1993), order aff'd, 158 B.R. 459 (N.D. Ill. 1993), aff'd, 23 F.3d 159 (7th Cir. 1994). Section 1334 provides that "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). The district court's authority may be delegated to bankruptcy judges pursuant to 28 U.S.C. § 157(a). Piccione, Keeley & Assocs., Ltd. v. Schoppe (In re RML Capital Inv., LLC), Nos. 09 B 04609, 09 A 00666, 2010 WL 1840249, at *2 (Bankr. N.D. Ill. May 10, 2010); Mulder, 307 B.R. at 644. The District Court for the Northern District of Illinois has referred all bankruptcy cases under its jurisdiction to its bankruptcy judges pursuant to Internal Operating Procedure 15(a). RML Capital Inv., 2010 WL 1840249, at *2. Accordingly, this court has...