In re Elk Grove Vill. Petroleum, LLC

• Decision Date: 15 December 2016
• Docket Number: Case No. 12bk49658
• Citation: 562 B.R. 708
• Parties: IN RE: ELK GROVE VILLAGE PETROLEUM, LLC, et al., Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

562 B.R. 708

IN RE: ELK GROVE VILLAGE PETROLEUM, LLC, et al., Debtors.

Case No. 12bk49658

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

Signed December 15, 2016

Attorney for Debtors: Timothy C. Culbertson, Fox River Grove, IL

Attorneys for Chapter 11 Trustee: Eugene Crane and Jeffrey C. Dan, Crane Heyman Simon Welch & Clar, Chicago, IL

Attorney for Hanmi Bank: Shelly A. DeRousse, Freeborn & Peters LLP, Chicago, IL

Attorney for Illinois Department of Revenue: James D. Newbold, Chicago, IL

MEMORANDUM DECISION

TIMOTHY A. BARNES, United States Bankruptcy Judge

The limited issue before the court arises after the appeal of this court's Order Granting Motion of United Central Bank for Allowance of Secured Claim and Turnover of Collateral Proceeds [Dkt. No. 271] (the "UCB Order") and Order [Dkt. No. 268] (the "IDOR Order"), each implementing in part this court's Memorandum Decision [Dkt. No. 267] (the "Proceeds Opinion").¹ The Proceeds Opinion resolved two competing motions:

(1) The Motion of United Central Bank for Allowance of Secured Claim and Turnover of Collateral Proceeds [Dkt. No. 205] (the "UCB Motion") brought by United Central Bank ("UCB");² and

(2) The Cross Motion of Illinois Department of Revenue for Partial Turnover of Proceeds of Sales [Dkt. No. 233] (the "IDOR Motion" and together with the UCB Motion, the "Motions") brought by the Illinois Department of Revenue ("IDOR").

Together, the Motions sought resolution of competing claims against proceeds of the sale of the assets under 11 U.S.C. § 363(f) (the "Sale") of Elk Grove Village Petroleum, LLC ("Elk Grove"), Joliet Petroleum, LLC ("Joliet"), Oswego Petroleum, LLC ("Oswego") and Orland Park Petroleum, LLC ("Orland Park", and collectively with Elk Grove, Joliet and Oswego, the "Debtors") to PAV2, LLC (the "Purchaser").

IDOR timely appealed both the IDOR Order and the UCB Order, and, on appeal, the District Court for the Northern District of Illinois (the "District Court") agreed with this court's determinations in the Proceeds Opinion in all respects but one.³ The District Court found that this court had not fully determined one issue—what value, if any, IDOR was entitled to by way of adequate protection of its extinguished right to pursue the Purchaser personally for unpaid taxes under 35 ILCS 5/902(d) (the "Illinois Income Tax Act") and 35 ILCS 129/5j (the "Retailers' Occupation Tax Act" and together with the Illinois Income Tax Act, the "Bulk Sales Acts").⁴ The District Court therefore remanded the matter to this court for further proceedings consistent the District Court Opinions. In all other respects, the Proceeds Opinion, the UCB Order and the IDOR Order were affirmed.

In light of the District Court Opinions and upon a review of the parties' subsequent filings, the court considers here the extent and validity of the successor liability aspect of IDOR's claims (the "Successor Liability Interest"), and the relative priority of such interest as against other claims to the Proceeds (defined below). The court concludes that IDOR has failed to carry its burden in establishing that its Successor Liability Interest has realizable value outside the context of the Sale. Further, under the unique facts of this case, the court concludes that there exists no source of recovery for such Successor Liability Interest, even if the claim had value elsewhere. For these reasons, the court concludes that the remaining aspects of the IDOR Motion not resolved by the court's earlier rulings and affirmed on appeal must be denied. In accord, all the remaining aspects of the UCB Motion not resolved by the court's earlier rulings and affirmed on appeal are, therefore, granted and the Trustee is authorized to pay the remaining Proceeds to Hanmi.

JURISDICTION

The federal district courts have "original and exclusive jurisdiction" of all cases under title 11 of the United States Code, 11 U.S.C. § 101, et seq. (the "Bankruptcy Code"). 28 U.S.C. § 1334(a). The federal district courts also have "original but not exclusive jurisdiction" of all civil proceedings arising under the Bankruptcy Code, or arising in or related to cases under the Bankruptcy Code. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with section 157(a), the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a).

A bankruptcy judge to whom a case has been referred may enter final judgment on any core proceeding arising under the Bankruptcy Code or arising in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). Matters arising under section 363 of the Bankruptcy Code are matters that may only arise in a bankruptcy case and, thus, the bankruptcy court is empowered to enter final orders with respect to the same. Directional Int'l, Ltd. v. Illinois Bell Tel. Co. (In re Pers. Comp. Network, Inc. ), 97 B.R. 909, 912 (N.D. Ill. 1989). All parties have consented to this court's entry of a final order adjudicating the Motions and this court's jurisdiction and constitutional authority were not challenged on appeal.

PROCEDURAL HISTORY

On December 10, 2015, an order of remand from the District Court was entered in this case. That order presumably superseded the District Court's prior remand order dated October 1, 2015. On January 19, 2016, the court conducted a status hearing on the matter after remand. At the conclusion of the status hearing, the court entered a scheduling order for briefing of the Motions in light of the District Court Opinions. See Order [Dkt. No. 421] (scheduling further briefing on the UCB Motion) and Order [Dkt. No. 420] (scheduling concurrent, further briefing on the IDOR Motion). That further briefing resulted in the following documents filed in the bankruptcy case:⁵

(1) Supplemental Memorandum of Law of Illinois Department of Revenue Addressing Issues Raised by Remand Order [Dkt. No. 429] (the "IDOR Supplement");

(2) Trustee's Response to Supplemental Memorandum of IDOR Addressing Issues Raised by Remand Order [Dkt. No. 436] (the "Trustee Response");

(3) Supplemental Memorandum of Law of Hanmi Bank Addressing Issues Raised by Remand Order and Response to Supplemental Memorandum of Law of Illinois Department of Revenue [Dkt. No. 438] (the "Hanmi Response"); and

(4) Illinois Department of Revenue's Response to Supplemental Memoranda of the Trustee and of Hanni [sic] Bank [Dkt. No. 442] (the "IDOR Reply").

The court has reviewed and considered each of the forgoing and has taken into consideration any and all exhibits submitted in conjunction therewith. The court has also considered the arguments of the parties at the January 19, 2016 and May 19, 2016 hearings on the Motions, and has reviewed and considered the District Court Opinions.

Though these items do not constitute an exhaustive list of the filings in the above-captioned bankruptcy case, the court has taken judicial notice of the contents of the docket in this matter. See Levine v. Egidi , Case No. 93C188, 1993 WL 69146, at *2 (N.D. Ill. Mar. 8, 1993) (authorizing a bankruptcy court to take judicial notice of its own docket); In re Brent , 458 B.R. 444, 455 n.5 (Bankr. N.D. Ill. 2011) (Goldgar, J.) (recognizing same).

BACKGROUND

The full history of this matter prior to remand has been set forth in Elk Grove , Elk Grove I and Elk Grove II . The court assumes familiarity with those opinions and thus provides only the briefest of summaries here.

The matter before the court arises out of the Sale, under which the Trustee sold to the Purchaser substantially all the assets of the Debtors "free and clear of all liens, claims, encumbrances and interests." Order Approving Sale of Gas Stations, ¶ B (dated Nov. 13, 2013) [Dkt. No. 191] (the "Sale Order"). The Sale Order provided adequate protection to all parties whose liens, claims, encumbrances, or interests were affected by the Sale by providing for "all liens, claims, encumbrances and interests to attach to the proceeds." Id .; see also Tr. 27, Oct. 29, 2013 ("[I]t's the court's ruling that the language proposed by the debtor adequately protects the interest of the State."). The Sale generated net proceeds totaling $4,991,736.13 with respect to the real property and $237,739.14 with respect to the inventory of the Debtors for a total of $5,229,475.27 (together, the "Proceeds"). Elk Grove , 510 B.R. at 598.

The Sale Order was not appealed and is final. After the entry of the Sale Order, however, the court was presented with the UCB Motion and IDOR Motion, each seeking to have all or a portion of the Proceeds remitted to them. The Motions renewed questions raised by way of objection to the Sale as to whether IDOR had an "interest" that is affected by a sale under section 363(f) of the Bankruptcy Code, and if so, whether and to what extent IDOR was entitled to adequate protection of that interest under section 363(e) of the Bankruptcy Code.

The court resolved those Motions in the Proceeds Opinion and the concurrent UCB Order and IDOR Order. The UCB Order and IDOR Order were subsequently appealed, however. On appeal, all but one aspect of the Proceeds Opinion, UCB Order and IDOR Order—discussed below—were affirmed.

The Proceeds Opinion was affirmed with respect to the quantification and allowance of both UCB's and IDOR's claims in the bankruptcy case. UCB was afforded an allowed, secured claim "in the total amount of $14,077,157.67, secured in the proceeds of the Sale." Id. at 600 (the "UCB Claim"). The court further concluded that "IDOR has valid liens in the amount of $1,387,418.93 as against the proceeds of the Sale. Otherwise, the IDOR claims are unsecured." Id. at 601 (collectively, the "IDOR Claims").

In the Proceeds Opinion, this court found that the IDOR Claims were lower in priority to the UCB Claim, id . at 602–03, and that finding was expressly affirmed...