In re Chicago Art Glass, Inc.

• Decision Date: 12 April 1993
• Docket Number: Bankruptcy No. 88 B 02810.
• Parties: In re CHICAGO ART GLASS, INC., Debtor.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

155 B.R. 180 (1993)

In re CHICAGO ART GLASS, INC., Debtor.

Bankruptcy No. 88 B 02810.

United States Bankruptcy Court, N.D. Illinois, E.D.

April 12, 1993.

COPYRIGHT MATERIAL OMITTED

Mark Naughton, Rudnick & Wolfe, Chicago, IL, Representing Trustee.

Benjamin Norris, Dept. of Justice, Washington, DC, Representing U.S.

MEMORANDUM OPINION

DAVID H. COAR, Bankruptcy Judge.

This Matter comes before the Court on the United States' Objection to amounts set forth in the Trustee's Application for the payment of commissions and the reimbursement of expenses incurred by Capital Liquidators, Inc. ("Capital") in the auctions conducted by Capital on behalf of Chicago Art Glass, Inc. ("Debtor"). The Court, having reviewed the memoranda of law submitted by the parties, the depositions and evidence presented, along with the applicable law, now issues Findings of Fact and Conclusions of Law pursuant to Rule 7052.

FINDINGS OF FACT

Chicago Art Glass, Inc. commenced bankruptcy proceedings by filing its voluntary petition for relief under Chapter 7 of the Code on February 23, 1988. The Trustee, Leroy G. Inskeep, ("Trustee") was appointed on or about February 25, 1988. Prior to the bankruptcy filing, the owner of Chicago Art Glass, John Metropulos ("Metropulos") had several meetings in the Fall of 1987, with Raymond and Debra Selk ("the Selks") regarding their possible purchase of all or most of the Chicago Art Glass assets. The Selks were interested in purchasing the major glass production equipment of Chicago Art Glass, the Company's customer lists, and, in particular, the colored glass formulas, along with the glass and metal moulds used to form the glass art and jewel objects that were unique to the Chicago Art Glass product line. Although Metropulos indicated his asking price for the Company was $100,000, at no time during these discussions did Metropulos provide the Selks with an inventory of the assets of Chicago Art Glass that were actually for sale. Additionally, Metropulos vacillated on whether the moulds would be a part of the sale or, if they were, which particular moulds would be included in the purchase price.

At a December meeting which included the Selks' accountant, Mr. Selk made his own written inventory of the larger equipment which Metropulos claimed would be part of the purchase. Because of the large number of moulds stored at the factory plus Metropulos' equivocation regarding the moulds, Selk did not list the number or types of moulds that were in storage at the time of that meeting. At a later meeting prior to the bankruptcy filing, Metropulos indicated to the Selks that he wanted to sell "everything". A purchase agreement which also included an inventory list compiled by the Selks was submitted to Metropulos prior to the bankruptcy filing but it was never signed. Additionally, the Selks noted that with each subsequent visit to the Chicago Art Glass facility between December of 1987 and February of 1988, they discerned what appeared to be the gradual removal of the Company's manufacturing equipment and, in particular, the moulds. At no time during this period did Metropulos drop his asking price of $100,000 even though the Company's physical assets continued to disappear from the Chicago Art Glass factory.

The Selks and Metropulos failed to arrive at an agreement and Metropulos caused Chicago Art Glass to file for relief in bankruptcy in February of 1988. Although the Selks tendered an offer to purchase the Company's assets immediately following the bankruptcy filing, this purchase was objected to by one of the creditors and a subsequent court order dated April 13, 1988, authorized an auction sale of the assets of Chicago Art Glass. The auction was to be conducted on May 17, 1988, and Capital Liquidators, Inc., was to carry out the advertising, promotion, proper handling and sale of the Chicago Art Glass assets.

In preparation for the auction, Capital inventoried and tagged all of the items that were for sale. The inventory list was used to create a brochure that was mailed to prospective customers. This brochure and the advertisements placed in the Chicago Tribune constituted Capital's primary methods of generating interest in the auction. On May 16, 1988, the Chicago Art Glass facility was made available for a preauction inspection. The Selks did not inspect the items to be sold at this time. Instead, the Selks waited until the day of the auction to tour the factory and its premises to note what was to be available for sale. One of the items which the Selks had expected to be sold at auction was an International van which had been on the premises but was missing the day of the auction. Wallace Lieberman, ("Lieberman") the auctioneer, represented that although the Internal Revenue Service had removed the van, it would still be available for sale at the auction.

The auction commenced with Lieberman announcing that there were no warranties or guarantees as to the accuracy of Capital's advertising. Additionally, all of the lots for sale were to be offered first in bulk and then later by individual lots. Lieberman would use his discretion to determine which method of sale would bring the most for the bankruptcy estate. The Selks made the highest bulk bid in the total amount of $66,112.50. The second highest bid was by Lieberman's son-in-law. After the bulk bidding, the individual lots were auctioned. During the course of bidding on the lots, the bidders requested the opportunity to inspect the lots but Lieberman refused. Not all of the items in the lots were tagged and there was no catalog listing the individual items located in each lot. After the lot bidding ceased, Lieberman indicated that the bulk bid was higher than the total of the lot bids and that, therefore, the bulk bid would be accepted. Thus, the Selks became the successful bidders. After the auction, the Selks tendered a check in the amount of $66,112.50. At the time the check was tendered, the Selks reminded Lieberman that the International van was to be included as part of the purchase. Lieberman represented that he would retrieve the truck from the IRS and would make sure the Selks obtained possession of the van. Additionally, the Selks requested both a receipt and a bill of sale from Lieberman.

The check the Selks tendered to Capital for the auction sale did not clear their bank. The reasons were twofold: first, the Selks' financing fell through; and, second, their bank refused to honor the check because the Selks told the bank that several items that they thought they had purchased were now missing. One of these items was the van. When the Selks notified Lieberman that the check they had tendered would not be honored, Lieberman suggested that the Selks try to come up with a down payment. Subsequently, the Selks deposited $18,000.00 with the Trustee as the down payment on their purchase.

Two to three weeks after the auction, the Selks returned to the Chicago Art Glass factory, and found that a number of items which were present on the day of the auction were now missing. The Selks also discovered that the locks to the Chicago Art Glass factory had never been changed by either the Trustee or the owner. Thus, anyone who had a key to the premises prepetition had access to the building during and after the auction. The Selks determined that many of the items which they believed they purchased at auction were later removed. Indeed, several weeks after the auction, Metropulos attempted to sell Mr. Selk moulds which were located in the garage of his home. Many of the moulds offered by Metropulos were on view on the day of the auction. Because of this, the Selks refused to pay the balance owed on their auction purchase. The Selks notified the Trustee and Lieberman orally and in writing that their only interest was in obtaining the items which they believed they had purchased. Lieberman's response to the Selks' refusal to remit the balance owed on the sale was abusive language and threats of physical violence. Incredibly, the Trustee responded by refusing to discuss the matter with the Selks. The Trustee directed the Selks to "discuss it with the auctioneer". On November 21, 1989, the Trustee filed an adversary complaint (case number 89 A 1040) to recover the balance of the amount bid at the auction and attorneys' fees from the Selks.

Prior to the Trustee's action against the Selks, there also arose questions over the ownership of moulds which had been removed from the Chicago Art Glass factory and loaded on trailers which were seized and held by the IRS. The property located on these trailers consisted of glass moulds purchased from the bankruptcy estate of the Roderer-Gleason Company. On June 16, 1989, Metropulos initiated an adversary proceeding (case number 89 A 567) against, inter alia, the Trustee to determine the ownership of this property. Raymond and Debra Selk were also intervenor complainants in this adversary proceeding. The Selks believed that many of the moulds that were located on the trailers were part of the Chicago Art Glass assets which they had purchased at the May 17, 1988, auction. This Court held an evidentiary hearing in the adversary proceeding and on October 6, 1989, determined that the moulds were the debtor's property. Additionally, a third trailer with moulds was also located at Ron Nunnes Trucking in Crystal Lake, Illinois.

On or about April 24, 1990, the Trustee presented a motion to approve a compromise of the controversy with the Selks, whereby the Selks would pay the Trustee $50,000.00 and the Trustee would convey title to the moulds to the Selks. The United States filed a written objection to the proposed settlement with the Selks and voiced its objection at a hearing on the proposed settlement. One of the objections raised by the United States was that there was no way, short of an auction, to determine the value of the moulds. The Trustee, in turn, suggested in writing to the United States that it...