Glenn v. Glenn (In re Glenn)

• Decision Date: 15 November 2013
• Docket Number: Bankruptcy Nos. 11bk12584,13ap00687.,13bk13374.,Adversary Nos. 11ap01455
• Citation: 502 B.R. 516
• Parties: In re Michele A. GLENN, Debtor. In re Michael R. Glenn, Jr., Debtor. Brian T. Sullivan, Plaintiff, v. Michele A. Glenn and Michael R. Glenn, Jr., Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

502 B.R. 516

In re Michele A. GLENN, Debtor.

In re Michael R. Glenn, Jr., Debtor.

Brian T. Sullivan, Plaintiff,

v.Michele A. Glenn and Michael R. Glenn, Jr., Defendants.

Bankruptcy Nos. 11bk12584, 13bk13374.

Adversary Nos. 11ap01455, 13ap00687.

United States Bankruptcy Court,

N.D. Illinois,

Eastern Division.

Nov. 15, 2013.

Chester H. Foster, Jr., Foster Legal Services, PLLC, Homewood, IL, for Debtor/Defendant.

David H. Latham, Law Offices of David H. Latham,^* Chicago, IL, for Plaintiff.

MEMORANDUM DECISION

TIMOTHY A. BARNES, Bankruptcy Judge.

The matter before the court arises out of two complaints filed by Brian T. Sullivan (“ Sullivan ”), each seeking a determination of dischargeability of debt under 11 U.S.C. § 523(a)(2)(A): (1) against debtor Michele A. Glenn (“ Michele ”) in adversary case no. 11ap01455 (the “ Michele Adversary ”); and (2) against debtor Michael R. Glenn, Jr. (“ Michael,” and together with Michele, “ Debtors ” or the “ Glenns ”) in adversary case no. 13 ap00687 (the “Michael Adversary,” and together with the Michele Adversary, the “ Adversary Proceedings ”). The Adversary Proceedings were consolidated for trial and simultaneously tried before the court in a four-day trial. For the reasons set forth herein, the court holds that the debt is dischargeable by each of the Debtors.

This Memorandum Decision constitutes the court's findings of fact and conclusions of law in accordance with Rule 7052 of the Federal Rules of Bankruptcy Procedure (the “ Bankruptcy Rules ”). Separate Orders will be entered pursuant to Bankruptcy Rule 9021.

JURISDICTION

The federal district courts have “original and exclusive jurisdiction” of all cases under title 11 of the United States Code (the “ Bankruptcy Code ”). 28 U.S.C. § 1334(a). The federal district courts also have “original but not exclusive jurisdiction” of all civil proceedings arising under title 11 of the United States Code, or arising in or related to cases under title 11. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with section 157(a), the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a).

A bankruptcy judge to whom a case has been referred may enter final judgment on any core proceeding arising under the Bankruptcy Code or arising in a case under title 11. 28 U.S.C. § 157(b)(1). A proceeding for determination of the dischargeability of a particular debt arises in a case under title 11 and is specified as a core proceeding. 28 U.S.C. § 157(b)(2)(I); Birriel v. Odeh (In re Odeh), 431 B.R. 807, 810 (Bankr.N.D.Ill.2010) (Wedoff, J.); Baermann v. Ryan (In re Ryan), 408 B.R. 143, 151 (Bankr.N.D.Ill.2009) (Squires, J.).

Accordingly, final judgment is within the scope of the court's authority.

PROCEDURAL HISTORY

In considering the relief sought by Sullivan, the court has considered the evidence and argument presented by the parties at the four-day trial that took place from July 15, 2013 through July 18, 2013 (the “ Trial ”),¹ has reviewed the complaint in the Michele Adversary and the complaint in the Michael Adversary (together, the “ Complaints ”), the attached exhibits submitted in conjunction therewith, and has reviewed and found each of the following of particular relevance:

(1) Michele's Answer to Complaint of Brian T. Sullivan To Determine Nondischargeability of Debt against Michele A. Glenn [Michele Adv. Dkt. No. 12];

(2) Michael's Answer to Complaint of Brian T. Sullivan To Determine Nondischargeability of Debt against Michael R. Glenn, Jr. [Michael Adv. Dkt. No. 5];

(3) Agreed Motion To Consolidate for Trial [Michele Adv. Dkt. No. 75; Michael Adv. Dkt. No. 12];

(4) Order Directing Simultaneous Trial of Two Related Adversary Proceedings [Michele Adv. Dkt. No. 76; Michael Adv. Dkt. No. 15]; (5) Amended Final Pretrial Order Governing Nondischargeability Complaint [Michele Adv. Dkt. No. 78];

(6) Joint Pretrial Statement [Michele Adv. Dkt. No. 79];

(7) Debtors' Motion To Amend Pretrial Statement [Michele Adv. Dkt. No. 81; Michael Adv. Dkt. No. 16];

(8) Sullivan's Response and Objection to Debtors' Motion To Amend Pretrial Statement [Michele Adv. Dkt. No. 83];

(9) Orders Authorizing Debtors To Amend Pretrial Statement [Michele Adv. Dkt. No. 84; Michael Adv. Dkt. No. 17];

(10) Debtors' Proposed Findings of Fact and Conclusions of Law [Michele Adv. Dkt. No. 88; Michael Adv. Dkt. No. 18]; and

(11) Sullivan's Proposed Findings of Fact and Conclusions of Law [Michele Adv. Dkt. No. 89; Michael Adv. Dkt. No. 20].

The court has considered the procedural history and previous court filings in the Michele Adversary, including:

(1) Michele's Motion for Summary Judgment and related filings [Michele Adv. Dkt. Nos. 31, 32, 35, and 49];

(2) Response to Michele's Motion for Summary Judgment and related filings [Michele Adv. Dkt. Nos. 56 and 57];

(3) Sullivan's Motion for Partial Summary Judgment [Michele Adv. Dkt. No. 37];

(4) Response to Sullivan's Motion for Partial Summary Judgment and related filings [Michele Adv. Dkt. Nos. 51, 53, and 61];

(5) Reply to Sullivan's Motion for Partial Summary Judgment [Michele Adv. Dkt. No. 60];

(6) Order Denying the Motion of Sullivan for Partial Summary Judgment [Michele Adv. Dkt. No. 69]; and

(7) Order Denying the Motion of Michele for Summary Judgment [Michele Adv. Dkt. No. 70].

Though the foregoing items do not constitute an exhaustive list of the filings in the Adversary Proceedings, the court has taken judicial notice of the contents of the dockets in this matter. See Levine v. Egidi, No. 93C188, 1993 WL 69146, at *2 (N.D.Ill. Mar. 8, 1993); Inskeep v. Grosso (In re Fin. Partners), 116 B.R. 629, 635 (Bankr.N.D.Ill.1989) (Sonderby, J.) (authorizing a bankruptcy court to take judicial notice of its own docket).

BACKGROUND

This case involves the failure of the Glenns' real estate business around 2007, when many such businesses were beginning to fail, and a loan that would prove to be an unsuccessful investment for Sullivan.

Michael and Michele Glenn are husband and wife and previously owned several entities that engaged in real estate development. In the fall of 2007, Michael sought a short-term loan for the business. He engaged the services of Karen Chung (“ Chung ”), who had previously procured loans for his business, to obtain a $250,000 loan. Chung approached Sullivan, her friend and someone with whom she had some business dealings, and eventually convinced him to provide the loan (the “ Sullivan Loan ”).

Prior to making the loan, Sullivan met with Michael, Chung and Chung's employee, Adrian Lopez (“ Lopez ”). Michele did not attend the meeting. The central issue in this case concerns representations that were made at the meeting specifically in relation to a $1 million line of credit for the Debtors' companies, ostensibly to be obtainedfrom LaSalle Bank (the “ LaSalle Loan ”). The Sullivan Loan may be characterized as a “bridge loan”—one intended to finance the Glenns' business until the LaSalle Loan was finalized, and which would be repaid from the LaSalle Loan itself. At the meeting, Chung and Lopez assured Sullivan that they had secured the LaSalle Loan, subject only to finalizing certain details. As separately established in Chung's bankruptcy case, Chung's representation regarding the existence of the LaSalle Loan was false. It was established in Chung's case that she committed fraud in obtaining the Sullivan Loan, which has not been repaid.

The issues also turn in part on a promissory note Sullivan required Michael, Michele and Chung to sign in connection with the Sullivan Loan, thereby agreeing to be personally liable on the loan. While Sullivan received a note bearing the signature of all three parties, Michele contends that the signature purported to be hers on the note is not authentic and not authorized.

In the Adversary Proceedings, Sullivan seeks a determination that the Sullivan Loan is not dischargeable pursuant to section 523(a)(2)(A) of the Bankruptcy Code because the debt was procured through fraud, false representation and false pretenses. There are essentially three issues before the court: (1) whether Chung's fraud should be imputed to the Debtors; (2) whether either of the Debtors independently committed fraud in connection with the loan; and (3) if Michael committed fraud or has Chung's fraud imputed to him, whether such fraud should be imputed to Michele.

FINDINGS OF FACT ²

From the review and consideration of the procedural background, as well as the evidence presented at the Trial, the court determines the salient facts to be as follows, and so finds that:

A. The Glenns and the Glenn Companies Business

(1) The Glenns, who have been married to each other since 1990, previously owned a real estate development and investment business (the “Glenn Companies Business”), which was comprised of several limited liability companies that owned and developed real estate primarily in Illinois and Indiana (the “ Glenn Companies ”). The Glenn Companies Business ultimately failed in approximately 2010 due to an excessive debt load and rapidly declining commercial real estate values.

(2) The Glenn Companies included 5M Investment Group, LLC (“5M”), which was the main investment vehicle for all of the real estate properties under development by the Glenn Companies Business. As of November 1, 2007, 5M was owned by Michael, Michele and their three children, with Michele owning 24%, Michael owning 4% and their children owning the remainder in equal shares. Michael was the only managing member in 5M and as such he controlled 5M as well as the entire Glenn Companies Business.³

(3) At the time the Sullivan Loan was made, Michele was studying to be a nurse. There is no credible evidence that Michele was involved in any aspect of the day-to-day management of...