In re Churchfield Management & Inv. Corp., Bankruptcy No. 84 B 07409
| Decision Date | 16 November 1990 |
| Docket Number | 86 A 0613.,Bankruptcy No. 84 B 07409,Adv. No. 86 A 0409 |
| Citation | 122 BR 76 |
| Parties | In re CHURCHFIELD MANAGEMENT & INVESTMENT CORPORATION, Debtor. WINSTON & STRAWN, as successor-in-interest to Daniel M. Pelliccioni, Trustee, Plaintiff, v. Kathryn KELLY, Defendant. WINSTON & STRAWN, as successor-in-interest to Daniel M. Pelliccioni, Trustee, Plaintiff, v. Lee DOMINGUEZ, JGC Trust #2, Thomas J. Connelly, et al., Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Thomas J. McCarthy, Jenner & Block, Chicago, Ill., for Winston & Strawn.
George W. Gessler, Gessler, Flynn, Laswell, Fleischmann, Hughes & Socol, Ltd., Chicago, Ill., for Lee A. Dominguez.
Gregory A. Adamski, Chicago, Ill., for Kathryn Kelly and JGC Trust # 2.
Thomas J. Connelly, Walworth, Wis., pro se.
Defendants Kathryn Kelly ("Kelly"), JGC Trust # 2 ("JGC Trust") and Thomas J. Connelly ("Connelly") (collectively, the "Defendants") have moved to dismiss the adversary complaints brought against them by plaintiff Winston & Strawn ("W & S") (the "Adversary Complaints") (the "Motions"). The Adversary Complaints seek to avoid certain transfers to the Defendants as preferences and fraudulent conveyances under § 547(b) and § 548 of the U.S. Bankruptcy Code. The Motions assert that this Court lacks subject matter jurisdiction over these avoidance actions and that W & S lacks standing to pursue them. W & S is plaintiff in the Adversary proceedings as successor-in-interest to the Chapter 11 Trustee pursuant to a settlement agreement in a prior action. Following hearing held August 6, 1990, and having considered the matters presented thereat and the pleadings and argument of counsel, for the reasons stated below the Motions are denied.
The applicable facts are found in the Complaints and record of proceedings of these two Adversary cases and related bankruptcy proceeding before this Court.
On or about June 12, 1984, Churchfield Management & Investment Corporation ("Debtor") filed a voluntary petition under Chapter 11 of the Bankruptcy Code. Debtor operated its business as a debtor-in-possession until August 26, 1986.
In April 1986, Debtor filed this preference action against Kelly, alleging that Debtor had transferred $60,000 to Kelly within ninety days prior to Debtor's Chapter 11 filing. On or about the same time, Debtor also filed a preference claim against JGC Trust, a trust established for the family of Thomas Connelly and the owner of 68,000 of 80,000 shares of Debtor's stock. Debtor sought to recover $50,000 allegedly transferred by Debtor to JGC Trust within twelve months prior to the bankruptcy filing. Finally, Debtor sought to avoid as a fraudulent conveyance a payment of $102,000 which was made by Debtor to Thomas Connelly himself.
After an extended hearing on the motions of W & S and the U.S. Trustee to remove existing management and appoint a trustee, on August 26, 1986 this Court ordered the U.S. Trustee to appoint a trustee. Daniel M. Pelliccioni was then appointed as the Trustee for Debtor ("Trustee"). In February and March of 1987, the Trustee intervened in the Adversary cases.
On June 9, 1988, following heavy litigation the Trustee entered into a settlement agreement with W & S and other parties in a District Court class action suit entitled Churchfield Management & Investment Corp., et al. v. Winston & Strawn, et al., 84 C 10904 (N.D.Ill.) ("Settlement Agreement"). Under the Settlement Agreement, the Trustee agreed, inter alia, to transfer to W & S all of the Trustee's rights, title and interest in the estate's claims in exchange for W & S's substantial monetary contribution to two funds, one for direct distribution to the estate's creditors and the other for payment of the estate's administrative expenses. In particular, the Trustee transferred to W & S the right to avoid and recover preferential transfers, along with the right to prosecute and collect upon claims for fraudulent conveyances. The Trustee agreed to appoint W & S as representative of the estate for the sole purpose of pursuing the causes of action assigned to W & S in the Settlement Agreement. The Settlement Agreement also recited that the Bankruptcy Court would "retain jurisdiction in order to implement and enforce the terms of" the transfer of preference and fraudulent conveyance claims.
On December 2, 1987, this Court entered an Order approving the Settlement Agreement (the "Bankruptcy Court Order"). In approving the Settlement Agreement, the Court observed that payments from all sources including W & S would result in payments totalling approximately $10,520,000 for benefit of persons who were creditors of this estate. Without the settlement, the estate would have continued to be involved in costly and time-consuming litigation which the estate might not have been able to fund and whose results were uncertain. The Court further observed that the Settlement Agreement would result in "significant benefits to the holders of Money Market Mortgages and limited partnership units in partnerships syndicated by Debtor, to a degree rarely found in bankruptcy proceedings." The Bankruptcy Court Order provided that the matters and issues being settled were core proceedings and were within the Court's discretion to approve.
On September 7, 1988, the District Court for the Northern District of Illinois, which had presided over the class action litigation, also approved the Settlement Agreement as being "valid and enforceable," noting as this Court had that the Settlement Agreement was "fair, reasonable, and adequate."
The proposed terms of the Settlement Agreement had been incorporated into the Second Amended Plan of Reorganization, which was confirmed by this Court on January 8, 1988 (the "Plan"). The Plan provided that Debtor's interest in certain causes of action would be assigned to W & S and that W & S was thereby appointed as a representative of the estate for the sole purpose of pursuing the assigned causes of action. The Plan also provided that the Court would retain jurisdiction to "hear and determine any and all pending adversary proceedings. . . ."
Accordingly, on March 17, 1989 W & S substituted for Trustee as Plaintiff in the instant Adversary Complaints against the Defendants. In their Motions to Dismiss, Defendants argue that because W & S is not the debtor and the estate will not realize any recovery, this Court has no independent basis for jurisdiction. The Defendants further assert that W & S lacks standing to pursue the Adversary Complaints because only the Trustee or debtor has the authority to maintain actions to recover preferences and fraudulent conveyances. It is clear that W & S is seeking recovery on claims that it was assigned and designated as representative of the estate to recover. It is also clear that W & S is entitled to retain and will not owe to the estate any recovery achieved in these cases.
In order for Defendants to prevail on their motions to dismiss, it must clearly appear from the pleadings that W & S can prove no set of facts in support of its claims which would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Swanson v. Wabash, Inc., 577 F.Supp. 1308 (N.D.Ill.1983). The issue is not whether W & S will ultimately prevail, but whether W & S has pleaded a cause of action sufficient to entitle it to offer evidence in support of its claims. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). The Court must consider both pleaded facts and reasonable inferences drawn from pleaded facts, in a light most favorable to the plaintiff when reviewing a defendant's motion to dismiss. Mescall v. Burrus, 603 F.2d 1266, 1269 (7th Cir.1979); Corcoran v. Chicago Park District, 875 F.2d 609 (7th Cir. 1989); Morgan v. DeRobertis, 582 F.Supp. 271, 273 (N.D.Ill.1984).
The subject matter jurisdiction of United States District Courts over bankruptcy matters is set forth in 28 U.S.C. § 1334.1 This section provides that the district court has exclusive jurisdiction over all cases under Title 11, and nonexclusive jurisdiction over all proceedings arising under Title 11, arising in a case under Title 11, or "related to" a case under Title 11. The threshold inquiry in this case is whether the Adversary Complaints fall within the bankruptcy jurisdiction outlined in § 1334(b).
The Adversary Complaints clearly arise under Title 11. The Fifth Circuit has explained that "Congress used the phrase `arising under title 11' to describe those proceedings that involve a cause of action created or determined by a statutory provision of title 11." In re Wood, 825 F.2d 90, 96 (5th Cir.1987). W & S asserts a right of recovery against the Defendants for preferences and fraudulent conveyances. These asserted causes of action are based upon statutory rights specifically created by the Bankruptcy Code, namely § 547 and § 548. In addition, §§ 157(b)(2)(F) and (H) of the Code explicitly provide that proceedings to determine, avoid or recover preferences and fraudulent conveyances are core proceedings. §§ 157(b)(2)(F, H).
Furthermore, courts have consistently upheld post-confirmation jurisdiction to recover preferential payments where the plan of reorganization provided for retention of jurisdiction. See In re Centennial Indus., 12 B.R. 99 (Bankr.S.D.N.Y.1981); In re Sweetwater, 884 F.2d 1323, 1324 (10th Cir. 1989). This Court retained its core jurisdiction to complete these adversary proceedings in the Bankruptcy Court Order which provided that "the matters and issues being settled in the Settlement Agreement are `core proceedings.'" Core jurisdiction to complete the adversary proceedings was also retained by confirmation of the Plan which provided that after entry of the order of...
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