In re Draiman

• Decision Date: 19 April 2011
• Docket Number: No. 09 B 17582.,09 B 17582.
• Parties: In re Nachshon DRAIMAN, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

450 B.R. 777

107 A.F.T.R.2d 2011-2180

54 Bankr.Ct.Dec. 175

In re Nachshon DRAIMAN, Debtor.

No. 09 B 17582.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

April 19, 2011.

Eugene J. Geekie, Jr., Esq., Barry S. Hyman, Esq., Chicago, IL, and Karen V. Newbury, Esq., for Creditor Dynegy Marketing and Trade.Joseph A. Baldi, Esq., Donna B. Wallace, Esq., and Alan J. Mandel, Esq., Chicago, IL, for Debtor Nachshon Draiman.

MEMORANDUM OPINION

JOHN H. SQUIRES, Bankruptcy Judge.

These matters come before the Court on confirmation of the fourth amended Chapter 11 plan of reorganization (the “Plan”) filed by Nachshon Draiman (the “Debtor”) and the objections thereto filed by Dynegy Marketing and Trade (“Dynegy”) and on the motion of Dynegy to dismiss or convert the case. ¹ For the reasons set forth herein, the Court sustains in part Dynegy's objections and denies confirmation of the Plan. In addition, the Court denies Dynegy's motion to dismiss or convert the Debtor's case. Because the Court has denied confirmation of the Plan and the case has been pending for approximately two years, the Court sets a hearing on May 24, 2011, at 10:00 a.m. to determine whether the case should be converted to Chapter 7 or dismissed.

I. JURISDICTION AND PROCEDURE

The Court has jurisdiction to entertain these matters pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. Additionally, whether the Court should confirm the Plan is a core proceeding under 28 U.S.C. § 157(b)(2)(L). The motion to dismiss or convert the case is also a core proceeding under § 157(b)(A) and (O).

II. FACTS AND BACKGROUND

On May 14, 2009, the Debtor filed a voluntary petition under Chapter 11 of the Bankruptcy Code. (Dynegy Ex. No. 1.) Pursuant to 11 U.S.C. §§ 1107 and 1108, the Debtor has continued in possession of his assets and has conducted his business and managed his financial affairs as a debtor-in-possession. Dynegy is a Colorado general partnership with its principal place of business in Houston, Texas.

The Debtor has interests in healthcare, real estate, and energy procurement (natural gas and electricity). (Debtor Ex. No. 6 at p. 24.) The Debtor is the sole proprietor of Future Associates, a management and consulting firm that operates several nursing facilities in the Chicago area. ( Id.) Further, the Debtor is the president of Lifescan Laboratory, Inc. (“Lifescan”), a medical testing laboratory. ( Id.) He also is the manager or member in three area nursing home facilities-Embassy Health Care Center, Inc., Peterson Park Nursing Home, and Burnham Health Care Center. ( Id. at pp. 24–25.) The Debtor is a partner in MNRE Ventures, LLC (“MNRE”) a real estate partnership that owns and leases nine residential condominiums in Chicago. ( Id. at pp. 10 & 25.) MNRE owns six condominium units which are currently in foreclosure. ( Id. at p. 10.)

The Debtor has been active in the healthcare field since the 1970s (Trans. 15:18–23) and has been involved in the purchase and sale of approximately fifteen to twenty nursing homes. ( Id. at 16:4–10.) In addition, the Debtor is the president and sole shareholder of Multiut Corporation (“Multiut”), a supplier of natural gas and electrical energy services. (Debtor Ex. No. 6 at p. 24; Trans. 350:24–351:4.) Multiut filed a separate Chapter 11 bankruptcy petition (09 B 17575) on May 14, 2009. The Debtor's income is derived from salaries and management and consulting fees from these various businesses. (Debtor Ex. No. 6 at p. 25.)

The Debtor and Multiut have been involved in litigation with Dynegy since 2002. ( Id. at p. 26.) Dynegy filed a complaint against the Debtor and Multiut in the United States District Court for the Northern District of Illinois (the “Illinois Litigation”). Dynegy alleged that Multiut failed to pay for natural gas that was delivered to it in 2000, 2001, and 2002. The Debtor was named in the lawsuit as a guarantor of the payments owed by Multiut. On June 11, 2008, the District Court entered a judgment in the amount of $15,348,244.72 plus interest against Multiut and the Debtor. (Dynegy Ex. Nos. 14 & 30.) The District Court denied a motion to reconsider that judgment. (Dynegy Ex. No. 30.) An appeal was filed before the Seventh Circuit Court of Appeals. (Debtor Ex. No. 6 at pp. 20, 26–27.) The Seventh Circuit denied Multiut's and the Debtor's motion to stay enforcement of the judgment. (Dynegy Ex. No. 34.) On June 23, 2010, the District Court denied a second motion to reconsider. (Debtor Ex. No. 6 at p. 20; Dynegy Ex. No. 30.) Thereafter, on July 16, 2010, the District Court entered an amended judgment that specified that the amount with interest due to Dynegy by Multiut and the Debtor is $22,623,392.18. (Debtor Ex. No. 6 at pp. 20 & 27; Dynegy Ex. Nos. 14 & 30.) On July 30, 2010, the Debtor filed a second notice of appeal with the Seventh Circuit. (Debtor Ex. No. 6 at p. 27.) The Seventh Circuit set oral arguments for January 12, 2011. (Trans. 76:22–77:3.) That matter is still pending as of this date.

Multiut filed a lawsuit against Dynegy in December 2004 in the District Court for the Northern District of Illinois. (Debtor Ex. No. 6 at p. 27.) In this suit, Multiut alleged that Dynegy violated the Sherman Antitrust Act, the Illinois Consumer Fraud and Deceptive Trade Practices Act, and committed fraud. ( Id.) Specifically, Multiut alleged that Dynegy intentionally manipulated price indices resulting in improperly higher charges to its customers, including Multiut. In January 2005, that case was transferred to a multi-district docket pending in the United States District Court of Nevada (the “MDL”). ( Id. at pp. 27–28.) In January 2010, Dynegy filed a motion for summary judgment challenging Multiut's fraud and Illinois Consumer Fraud and Deceptive Trade Practices Act claims. ( Id. at p. 28.) The motion is fully briefed and awaiting a decision. ( Id.)

In April 2010, the Debtor and Multiut filed a malpractice claim in the District Court for the Northern District of Illinois against Greenberg Traurig, LLP (“Greenberg”) based upon its representation of the Debtor and Multiut in the Illinois Litigation and the MDL. ( Id. at pp. 29–30.) The Debtor contends, among other things, that Greenberg failed to adequately raise defenses to claims asserted in the Illinois Litigation with respect to the Debtor's personal guarantee. ( Id.) Further, the Debtor alleges that Greenberg failed to preserve the Debtor's ability to participate in the MDL. ( Id.) The Debtor and Multiut have asserted a claim for damages in excess of $20 million. ( Id. at p. 30.) This claim against Greenberg is being pursued by counsel on a contingent fee basis. ( Id.) In December 2010, the District Court granted the Debtor and Multiut leave to file an amended complaint. Multiut Corp. v. Greenberg Traurig, LLP, No. 10 C 3238, 2010 WL 5018538, at *5 (N.D.Ill.Dec.2, 2010). (Dynegy Ex. No. 31.)

On February 22, 2010, Dynegy filed a motion to appoint an examiner. (Docket No. 256.) On March 16, 2010, after a hearing on the motion granted by the Court, the United States Trustee appointed Patrick J. O'Malley (the “Examiner”) as examiner of the Debtor's estate. (Docket No. 275.) Thereafter, on July 6, 2010, the Examiner filed a preliminary report with the Court. (Dynegy Ex. No. 9.) The Examiner filed a second report (“Second Report”) on December 13, 2010. (Dynegy Ex. No. 35.)

The Examiner found, inter alia, that the Debtor's books and records currently available were “less than appropriate for the size and complexity of the Debtor's various businesses.” ( Id.) Further, the Examiner noted discrepancies between the Debtor's records and his bankruptcy schedules and statement of financial affairs. ( Id.) The Examiner also discovered variances between the Debtor's 2008 income tax return and other information he reviewed. ( Id.)

On November 11, 2009, Dynegy filed its proof of claim against the Debtor in the sum of $22,750,716.54. (Dynegy Ex. No. 6.) The Debtor filed an objection to that claim. (Docket No. 315.) On August 16, 2010, the Court overruled the Debtor's objection to Dynegy's claim because it had already been adjudicated on the merits by the District Court in Dynegy's favor. (Docket No. 374.)

On September 3, 2010, the Debtor filed his fourth amended disclosure statement (“Disclosure Statement”) as well as the Plan. (Debtor Ex. Nos. 5 & 6.) ² On October 7, 2010, the Court approved this iteration of the Disclosure Statement as adequate under 11 U.S.C. § 1125. (Debtor Ex. No. 7.) The Plan proposes to pay administrative claims and priority tax claims, and it defines twelve different classes of claims. Seven of the twelve classes are for secured claims. Two of the five remaining classes are single-person classes. Class 7 is the claim of Sam Lipshitz (“Lipshitz”), the Debtor's friend and business partner. Class 9 is the claim of Bruria Draiman, the Debtor's ex-wife (“Bruria”). Class 12 creditors are defined as insiders, friends, and business partners of the Debtor. Class 10 consists of general unsecured claims. Class 11 consists of four claims that the Debtor has defined as unsecured and disputed. Dynegy's claim has been placed in Class 11.

The Disclosure Statement provides that the Debtor's assets shall be divided into three groups: (1) the “Retained Assets” ³ that will be purchased and retained by the Debtor; (2) Future Associates Assets ⁴ that will be purchased and transferred to a new entity formed by the Debtor; and (3) Liquidation Trust Assets ⁵ that will be transferred to a liquidation trust (the “Liquidation Trust”), which will be set up for this purpose, in order to liquidate the Debtor's remaining nonexempt assets for the benefit of his creditors. (Debtor Ex. No. 6 at p. 4.) Distributions for claims provided for in the Plan shall be made by a liquidation trustee (the “Liquidation Trustee”). ( See id. at p. 23.) These distributions...