In re Carl F. Semrau D.D.S., Ltd.
| Citation | 356 B.R. 677 |
| Decision Date | 14 December 2006 |
| Docket Number | No. 01 B 08648.,01 B 08648. |
| Parties | In re Carl F. SEMRAU D.D.S., LTD., a dissolved Illinois corporation, Debtor. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois |
Kevin T. Keating, Keating & Shure, Robert J. Slobig, Zoran Dragutinovich, Torshen, Slobig, Genden, Dragutinovich, Chicago, IL, for Debtor.
These matters come before the Court on the motion of Carl F. Semrau and Carl F. Semrau, D.D.S., Ltd., an Illinois corporation (the "Debtors") for sanctions pursuant to 11 U.S.C. § 105(a) and 28 U.S.C. § 1927 against Mary O'Connor, Cynthia Hamilton f/k/a Cynthia Semrau, James Schelli, Jr., Webster & Schelli, P.C., and Clausen Miller PC (the "Respondents"). The Debtors' motion is challenged by the motions of the Respondents to dismiss and/or object to the Debtors' motion under Federal Rule of Civil Procedure 12(b)(1) and (b)(6). For the reasons set forth herein, the Court denies the Debtors' motion and grants the Respondents' motions to dismiss. The Court concludes that laches bars the relief sought, that the Debtors have unreasonably delayed the relief sought, and the Respondents have been prejudiced by such delay.
Some of the facts and background of the two Debtors' respective cases are contained in a prior opinion of the Court. In re Semrau, No. 01 B 08648, 2005 WL 3242332 (Bankr.N.D.IIl. Dec. 1, 2005). Both Debtors filed their respective Chapter 7 petitions with this Court on March 14, 2001. The individual Debtor was the sole shareholder and officer of the corporate Debtor. Separate Chapter 7 interim Trustees were appointed for the two bankruptcy estates which have now been fully administered. Carl's case was closed on August 5, 2005, after he received his discharge. The Debtors' motion was filed on June 22, 2006 after the trustee in this case had filed a final report and account which has previously been approved without objection. Not all allowed creditors' claims were satisfied or paid in full in this case, so there was no excess estate property to revert to this Debtor for the benefit of its shareholder, Carl. It appears that the instant motions are the last remaining matters pending in this corporate case.
During the course of administration the corporate shares of stock were abandoned by the Trustee in the individual case pursuant to 11 U.S.C. § 554 and thereby reverted to the individual Debtor, a licensed and practicing dentist. Because neither case administration resulted in the full payment of all allowed claims, the Court held, in part, that the individual Debtor lacked standing to object to a creditor's claim in his individual case. In re Semrau, 2005 WL 3242332, at *5-6. That holding is significant here for the same logical reasons, as there are no excess funds after payment of all allowed claims to revert back to the corporate Debtor for the benefit of its shareholder, Carl. Respondents Mary O'Connor and Cynthia Hamilton contend that although the corporate entity is one of the movants in this matter, it was involuntarily dissolved and has not been revived or reinstated. This is evidenced by a copy of a report from the Illinois Secretary of State appended to the file by Mary and Cynthia showing the Debtors' involuntary dissolution on October 1, 2001. The Debtors contend that the corporation had been reinstated after the involuntary dissolution and is now in good standing. This opinion assumes that the corporation has been reinstated.
The instant motion is unrelated to the prior litigation involving that creditor's claim, but it arises after the conclusion of protracted and contentious litigation in state court related to the dissolution of the marriage of Carl and Cynthia. The Debtors contend that the Respondents filed false pleadings and vexatiously and unreasonably multiplied the proceedings in this Court in order to injure and disadvantage them. The Debtors seek redress for what they conclude was a six-year campaign of litigation abuse against them by the various Respondents, most of which allegedly took place before this Court.
Respondent Cynthia Hamilton is the individual Debtor's former spouse. Their marriage was dissolved in an Illinois state court by judgment entered on July 18, 2002. Respondent Mary O'Connor is the sister of Cynthia Hamilton and is an Illinois attorney who was affiliated with Respondent Clausen Miller P.C. The Debtors' motion asserts that Cynthia and Mary conceived a plan to harm Debtors personally, professionally, and financially. In 1998, after Mary directed other attorneys to file a state court complaint on Cynthia's behalf to dissolve her marriage with Carl, Mary allegedly stated to various people that she would "destroy him." The motion also alleges that in 1999, Mary, through Clausen Miller and on behalf of Cynthia, filed a state court law division complaint against the Debtors and others claiming an interest in the dental practice. Allegedly, Mary also claimed, among other things, that Carl looted the dental practice and secreted moneys and proceeds to which Cynthia was entitled. Further, the motion asserts that the Debtors were forced to defend these allegedly false claims at their own expense, all while Cynthia was engaging in wrongful conduct in the state court cases, including making exorbitant demands to settle the dissolution case, engaging in abusive discovery practices, and attempting an extortion scheme orchestrated by Mary. Ten pages of the Debtors' thirty-six page motion at bar relate to Cynthia and Mary's allegedly wrongful acts in the two state court cases, which does not need further collaboration.
The upshot of the state court litigation resulted in the Debtors filing their petitions in this Court in 2001. The Debtors allege that Cynthia and Mary persisted in their efforts against the Debtors in this Court by filing separate adversary proceedings related to each Debtor's case, reiterating false and untrue allegations made in the state court law division case. Moreover, they allegedly filed false claims in both cases, engaged in duplicative and inappropriate discovery, and among other things, filed an improper motion in the corporate debtor's case in the nature of an objection to discharge, which by law cannot be obtained as Chapter 7 discharges can only be issued for individual debtors. They were allegedly aided by Respondent James Schelli, Jr., an Illinois attorney who at relevant times represented Cynthia and Mary in various matters before this Court in connection with both Debtors' cases. He is a member of Respondent Webster & Schelli P.C. The Debtors' motion alleges that Schelli, in claim settlement negotiations, attempted to blackmail Carl, wrongfully asserting that Carl had violated bankruptcy criminal statutes. The Debtors also allege that Schelli, Cynthia, and Mary engaged in improper conduct in connection with the dismissal of the adversary proceedings, the withdrawal of Cynthia's claims, and the purchase of estate assets from the Trustees of both bankruptcy estates.
The motion further alleges that such action led the Trustee of the corporate Debtor to file a separate action against Cynthia and Mary to recover the unpaid balance of the agreed purchase price for the estate assets sold by that trustee. Allegedly, Cynthia and Mary had possession of the estate assets but had not paid the balance for over two years. The motion asserts that they, together with Schelli's participation and abatement, wrongfully accused Carl or another creditor of possessing the estate assets. Thus, the Debtors allege that as a result of such improper conduct, Carl expended three hundred thousand dollars of his own and borrowed funds to the detriment of himself and his dental practice. Clausen Miller allegedly failed in its duty to supervise its member attorney, Mary, and failed to restrain and prevent her from engaging in the alleged misconduct. Clausen Miller allegedly required her to resign from the firm, notwithstanding that it allegedly benefitted from her and Cynthia's wrongful activities. Similarly, Webster & Schelli allegedly failed to supervise Schelli's actions on behalf of Mary and Cynthia. Thus, the Debtors conclude that this Court should impose appropriate sanctions against the Respondents pursuant to 11 U.S.C. § 105 and 28 U.S.C. § 1927 to pay the Debtors' costs and attorneys fees plus an appropriate sanction, all in unspecified amounts.
Counsel for Cynthia and Mary filed a motion to allow Fed. R. Bankr.P. 7012 apply to the Debtors' motion pursuant to Rule 9014(c). That was not opposed by the Debtors. This was followed by Cynthia and Mary's motion to dismiss under Rule 7012 incorporating Fed R. Civ. P. 12(b)(6). Cynthia and Mary raised various defenses to the Debtors' motion, including laches, res judicata, release, lack of subject matter jurisdiction, the Rooker-Feldman doctrine, and lack of standing. They assert that the prior state court litigation in both the dissolution and law division cases was settled over four years ago in July 2002, and the adversary proceedings before this Court were concluded in 2002, 2003, and 2004. Thus, Cynthia and Mary claim that the Debtors' motion is both untimely and barred at this time by one or more of the foregoing defenses. Schelli and his firm Webster & Schelli, have filed a separate motion to dismiss referencing Rule 12(b)(1) and (6) on the grounds of res judicata, lack of standing, laches, and statute of limitations. The motion also adopts the other Respondents' grounds for dismissal. Clausen Miller has filed its motion to "object" to the Debtors' motion but references Rules 7012 and 12(b)(1) and (6). Clausen Miller raises some of the other Respondent's defenses including lack of subject matter jurisdiction, laches, res judicata,...
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