In re Burke

Decision Date18 December 2008
Docket NumberBankruptcy No. 08 B 01548.,Adversary No. 08 A 00252.
Citation398 B.R. 608
PartiesIn re Barry E. BURKE, Debtor. Colemichael Investments, L.L.C., Plaintiff, v. Barry E. Burke, Defendant.
CourtU.S. Bankruptcy Court — Northern District of Illinois

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Tracey L. Wolfe, Esq., Chicago, IL, for Plaintiff.

Thomas N. Auwers, Esq., for Defendant. David R. Brown, Trustee.

MEMORANDUM OPINION

This matter comes before the Court on the motion of ColeMichael Investments, L.L.C. ("ColeMichael") for judgment on the pleadings against the debtor, Barry E. Burke, ("Burke") on the complaint filed by ColeMichael. The complaint seeks a finding that the debt reflected by a default judgment entered by the District Court of Dallas County, Texas, is not dischargeable under 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6). For the reasons set forth herein, the Court denies the motion. This adversary proceeding has been set for trial commencing on May 4, 2009. The Final Pretrial Order previously entered shall remain in full force and effect.

I. JURISDICTION AND PROCEDURE

The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334(a) and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I).

II. UNDISPUTED FACTS AND BACKGROUND

The following facts are taken from ColeMichael's complaint and from all public records and proceedings to which the parties refer. Many of the facts alleged in the complaint, which were admitted in the answer, are uncontested.

ColeMichael is a limited liability company organized under the laws of the State of Nevada with its principal place of business located in Dallas, Texas. (Compl. ¶ 1; Answer ¶ 1.) Burke is an individual who resides in Lombard, Illinois. (Compl. ¶ 2; Answer ¶ 2.) Burke was admitted to practice law in the State of Illinois in 1976. (Compl. ¶ 4; Answer ¶ 4.) By order of the Illinois Supreme Court, Burke was disbarred on consent on September 21, 2006. (Compl. ¶ 6; Answer ¶ 6.) From his admission until his disbarment, Burke was an Illinois attorney licensed to practice law in the State of Illinois, and admitted to the bars of the Illinois Supreme Court and the United States District Court for the Northern District of Illinois. (Compl. ¶ 5; Answer ¶ 5.)

A. The Dallas County Proceedings

In 1998, ColeMichael commenced proceedings against several defendants, including Burke, in the District Court of Dallas County, Texas, Cause No. 98-07667-D (the "Dallas County Proceedings"). (Compl. ¶ 7 & Ex. No. 1.) In the Dallas County Proceedings, the original petition and summons were served upon the Texas Secretary of State who then served them upon Burke by certified mail. (Compl. ¶ 9 & Ex. No. 2; Answer ¶ 9.) Burke denies that the original petition and summons were served upon him in accordance with Texas law. (Answer ¶ 8.) A copy of ColeMichael's first amended original petition filed on October 13, 1998, has been submitted to the Court. (Compl.Ex. No. 1.) A copy of the original petition has not been provided to the Court. ColeMichael alleges that the original petition and the first amended original petition were substantively identical. (Compl. ¶ 10.) Burke denies this allegation. (Answer ¶ 10.)

In its first amended original petition, ColeMichael sought to recover damages from Burke and his co-defendants for claims arising out of ColeMichael's investment in a joint venture established to invest in a "high yield capital enhancement strategy" later identified as an "IMF [International Money Fund] Sponsored Enhanced Financial Return Strategy." (Compl. Ex. No. 1 at ¶ 11.) In 1996, Burke required ColeMichael to wire transfer to Burke's client funds account a retainer and an investment in the amount of 300,000 in the "high yield capital enhancement strategy." (Compl. ¶¶ 16 & 17b; Answer ¶¶ 16 & 17b.) The amended original petition alleged the following causes of action against Burke and several other defendants: breach of contract; accounting; fraud; fraudulent inducement; breach of fiduciary duty; legal malpractice; negligence; oppression of a minority venturer; and negligence per se. (Compl.Ex. No. 1.)

Specifically, in the first amended original petition, ColeMichael alleged, among other things, that Burke represented himself to be an international expert in the type of transaction ColeMichael was solicited to invest in (id. at ¶ 13); Burke required ColeMichael to retain Burke as its attorney (id.); Burke made fraudulent misrepresentations to induce ColeMichael to invest in the transaction, including the representation that because of the "secret involvement" of the United States government the terms of the agreement were non-negotiable (id. at ¶¶ 14 & 25); and Burke acted as attorney and fiduciary for ColeMichael in connection with the investment (id. at ¶¶ 13-16). ColeMichael further alleged that Burke made a series of misrepresentations in order to avoid payment of funds owed ColeMichael in connection with the investment. (Id. at ¶¶ 110 & 19.) Burke denies all of the above allegations set forth in the first amended original petition. (Answer ¶ 17.) Burke failed to appear or file an answer in the Dallas County Proceedings. (Compl. ¶ 18; Answer ¶ 18.)

On January 7, 1999, the Dallas County District Court entered a default judgment as to Burke (the "Default Judgment"). (Compl.Ex. No. 3.) The Default Judgment stated in pertinent part as follows:

The Court finds and holds that Defendant Burke was duly served with process in the form, manner and within the length of time required by law. .. . Therefore, the Court holds that it has jurisdiction over Defendant Burke and the subject matter and that the time for filing an answer by Defendant Burke has passed....

The Court has considered the pleadings and evidence presented and finds that Plaintiff ColeMichael is entitled to a default judgment against Defendant Burke in this cause and that all facts contained in Plaintiffs First Amended Original Petition are deemed admitted as to Defendant Burke.

IT IS, THEREFORE, ORDERED, ADJUDGED AND DECREED that Plaintiff ColeMichael Investments, LLC, have and recover judgment against Defendant Barry E. Burke for all causes of action set forth in Plaintiffs First Amended Original Petition, and that ColeMichael recover of and from Defendant Barry E. Burke the sum of ... ($21,178,261).

(Id. at pp. 1-2.)

On March 11, 1999, the Dallas County District Court entered a final default judgment as to defendants Burke, John Bright, and Bayvest Capital Funding Limited (the "Final Default Judgment"). (Compl.Ex. No. 4.) The Final Default Judgment incorporated the Default Judgment. (Id. at p. 2.) The Final Default Judgment stated in pertinent part as follows:

The Court has considered the pleadings and evidence presented and finds that Plaintiff ColeMichael is entitled to a default judgment against Defendants Burke, Bright, and Bayvest in this cause and that all facts contained in Plaintiffs First Amended Original Petition are deemed admitted as to Bright.

IT IS, THEREFORE, ORDERED, ADJUDGED AND DECREED that Plaintiff ColeMichael Investments, LLC, have and recover judgment against Defendants Barry E. Burke, John Bright and Bayvest Capital Funding Limited, jointly and severally, for all causes of action set forth in Plaintiffs First Amended Original Petition, and that ColeMichael Investments, LLC recover of and from Defendants Barry E. Burke, John Bright and Bayvest Capital Funding' Limited, jointly and severally, the sum of ... ($21,178,261).

(Id. at p. 3.) Burke did not appeal the Final Default Judgment. (Compl. ¶ 26; Answer ¶ 26.)

B. The Cook County Proceedings
1. Citation to Discover Assets

In November of 1999, ColeMichael commenced enforcement proceedings before the Circuit Court of Cook County, Illinois, Case Number 99 L13268, (the "Cook County Proceedings") by registering the Final Default Judgment and causing a citation to discover assets to be served upon Burke. (Compl. ¶ 27; Answer ¶ 27.) ColeMichael's citation to discover assets was duly served upon Burke and called for his appearance in answer to the citation on February 22, 2000. (Compl. ¶ 29; Answer ¶ 29.)

Prior to December 28, 1999, Burke, through his counsel, filed a motion to stay enforcement of post-judgment proceedings. (Compl. ¶ 30; Answer ¶ 30.) In the motion to stay, Burke contended that he had not been personally served with the petition in the Dallas County Proceedings and that he intended "to challenge [the Final Default Judgment] in the Texas court which entered it by the filing of a motion to vacate or appropriate petition." (Id.) Burke requested that the Cook County Circuit Court stay the enforcement of the Final Default Judgment. (Id.) At the hearing held in the Cook County Proceedings on February 29, 2000, all matters, including the motion to stay, were continued for hearing to March 8, 2000, and Burke was ordered to personally appear in court at that continued hearing. (Compl. ¶ 33; Answer ¶ 33.)

On March 8, 2000, Burke filed a voluntary Chapter 7 bankruptcy petition. (Compl. ¶ 34; Answer ¶ 34.) The case was dismissed on April 10, 2000, due to Burke's failure to file schedules as required under Federal Rule of Bankruptcy Procedure 1007. (Compl. ¶ 35; Answer ¶ 35.) Burke was barred from filing another bankruptcy petition without prior leave from the Court for a period of 180 days due to his abuse of the bankruptcy process. (Id.)

On April 28, 2000, the Cook County Proceedings were reinstated from the stay in effect as a result of Burke's first bankruptcy, and the case was removed from that court's bankruptcy call. (Compl. ¶ 36; Answer ¶ 36.) On May 5, 2000, the matter was continued by order entered by the Cook County Circuit Court, and Burke was ordered to personally appear in court on May 31, 2000. (Compl...

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